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5 or 15 Minute Charts

Article by Larry Potter

We got an interesting question from reader the other day and her question was ” when you put out a consider buy at “X” price, does it matter what the 5 or 15 minute charts are doing at that time? ” Good question.

If you watch the market in live time, you’ll see that just about every move is pegged to some form of moving average or technical level. Maybe it’s the 9 day EMA, maybe it’s the 50 day SMA. Maybe it’s the 15 minute candle stick chart, maybe it’s pivots, or even fibbinacci levels. So, what does one do if we like the “XYZ” company at say and it’s approaching on the daily chart, but it’s getting overextended on the very short term indicators? What if we buy it at .03 just as the 15 minute chart shows it’s time for a pull back?

We’ve often struggled with this very question, but have to take into account that more than 70% of our readers can’t sit in front of a computer and trade all day, they are working folks. So, telling them to be wary of the 5 minute bar charts isn’t going to help them much. What we found to be more realistic, is to put out a resistance area, and if the stock gets above it, take the shot, but give it some wiggle room to fade back, catch it’s breath and move up again.

Quite often a typical pattern on XYZ would be to inch higher, break above , run to say .10 and then fade back, falling below and holding at say .90. Then if the initial move got enough attention it rises back to challenge again, and “hopefully” it goes on up and through. In this situation, volume would be much more important than bar or candle charts. But once again, a lot of people can’t watch that in live time.

So, we put the play out, with a measure of wiggle room for the initial move up. We might say “XYZ long above .05” But then we might have a “stop loss” if you purchase the stock at say .70. That allows the stock to work it’s way up and down and finally break out, if indeed that’s in the cards.

If you have the ability to watch the market in real time, by all means, use short term charts and ESPECIALLY volume spikes to help you gauge if you should get in or not. But for the bulk of you whowork for a living, set your buy area above the breakout and give it enough wiggle room to fail the breakout without shaking you out. That’s the best play we’ve been able to come up with.

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