I am drawn to low timeframes. They say you outgrow this as you gain experience trading, but 7 years into this the attraction remains because of the compounding capabilities, the immediacy of knowing whether direction is right or not, and since I'm self-employed I can keep an eye on charts and evaluate signals at most waking hours. I also don't like waiting days and days for a trade to develop, setting 100 pips stoplosses as you often have to on high timeframes, and watching the daily chart range around uselessly while on a low timeframe there are opportunities to grab runs of 5 to 10 to 20 or more pips every few hours.
Trading low timeframes requires the best filtering you can put in place so as not to take every signal that appears because many are false. I mostly watch M1 and M5 charts, and I even use the Period Converter script in the new build of MT4 to create offline charts that allow the viewing of an M2 or M3 market, which themselves filter some of the excessive signals that appear on M1 while providing more action than M5. There's also something to be said for viewing the market in a timeframe that nearly no one else is viewing; instead of reacting on the same candle closes as other traders are when an M15 or M30 or H1 closes, you can act when they are waiting because you're viewing a atypical timeframe that they are not.
I am putting together an algorithm along the lines of what VP of NNFX teaches, consisting of the components of: average true range, a baseline which price physically has to cross, a couple confirmation indicators for confluence, a volume indicator, and an exit indicator. I have most of the pieces for this and when I have them all I'll put together a more formal write-up and present it. The "baseline" in the algo serves as a "guardrail" for price - if price crosses the baseline, then based on a few confirmation indicators, a trade can be evaluated to determine likelihood to move into profit. Many people use moving averages for baselines. I discovered some time back, through my habit of pulling apart indicators and using pieces of them in unconventional ways, that the Dynamic Zone OnChart Stochastic signal line was quite a good baseline; better than many of the moving averages I had tried. I don't use the other lines in this indicator for anything - I hide their lines by choosing color = none, and I make the signal line white on my charts, as I am specifically interested in what happens when price crosses this line. The fact that MrTools has just added MTF as well as AHTF to this indi has me studying how price reacts to baselines printed by higher timeframes - thank you again MrTools for the coding expertise.
As is my habit of borrowing pieces of indicators or single indicators out of other systems, I have borrowed Xard's ZigZag indi for my charts as I love the way it frames structure around the market. It prints what I call "Xard coins" on the swing low and swing high points, with "king" coins appearing with highlighted green or red outlines, and "jack" coins appearing as white dots without colored outlines. The impossibly perfect trades would be the capture of one "coin" to the next, which are the swing lows and highs. It can never be known in advance where the coins will park themselves while the market is open and moving - price action carries them along, and when price turns and moves far enough away for the next one to appear, the previous coin becomes fixed in place. "King" coins at the highest swing low / swing high positions are obvious in hindsight but if you watch them move in real time (or use screen recording software to record hours of market movement), you'll see "jack" coins become "king" coins. The DZ OnChart Stochastic signal line with the settings of between 10 - 30 for StoSlowing Peroid and a value of 45 for DzxLookbackBars rather beautifully guardrail the price on your screen between the Xard "coins," which are swing points. Fairly often, when price crosses this line, it means the previous Xard coin has "parked" itself and price will continue for some distance the other direction. Other early indicators like Williams Percent Range, TSI, and MACD can call these turning points but often with many false signals on low timeframes. Moving average baselines will see price touch them or cross them slightly and then cross back, or let too much of the move get underway before crossing depending on the type of moving average and period used. Unless price action is very volatile and choppy, the signal line with the aforementioned M1 settings tend to keep price on one side of itself until the next swing point comes.
Next, we need a signal generator to let us know when price crosses the Stochastic signal line. I have tried many - Williams Percent Range, M-Oscillator, BB Stops, Trend Envelopes, and a few others are good candidates. I have arrived on the brilliant Stemp NEMA (one of the Forex-Station "Top Ten" indis, for good reason). This indi is wonderfully malleable in its settings; the settings I have landed on tend to provide alerts when price is very near to crossing the stochastic signal. Plus the step filtering this indi provides on the noisy low timeframe charts prevents an annoying number of false signals that would otherwise alert.
Here's an example chart of M1 GBPUSD at the London open to some of the London / New York overlap on August 16 2021, using part of a template I like. The M1 on-chart stochastic signal line is white. The vertical lines are just an hourly bars indicator and a sessions indicator colors the background of the trading session based on pip range. My comments / entry scribbles are all in yellow:
If you were to make some rules for a rudimentary system using just these indicators (granted, an exit indicator is needed), they might be:
* Price MUST not only cross but also close on the opposite side of the stochastic signal line as a first criterion.
* If Step NEMA signals before price crosses the baseline, wait a few candles until it does. Doing so might get you a better entry, or it might keep you out of a bad trade altogether. When Step NEMA signals and price has closed on the opposite side of the stochastic signal line in agreement with Step NEMA, that is a valid signal
* You do not keep a position that is contrary to both Step NEMA and the baseline, i.e., you don't keep a short position open if Step NEMA indicates to go long AND price has closed above the baseline.
Remember, these are just basic rules. I'm working on an algorithm that uses these but also other rules for filtering, because as you can see, not all signals are good and could have been avoided with better filtering. Now that the DZ OnChart Stochastic indicator has MTF capability, let's bring that into the equation as a black line, using the same settings as M1, just set to MTF of M5:
Simple rules for this system would be the same as the above, and additionally:
* Price must cross and close in on the outside of BOTH M1 and M5 signal lines, not just M1, for a Step NEMA signal to be considered valid. This will cost some amount of the potential that some trade could run by getting you in later, but it will also prevent entire losing trades because price stays stuck between both signal lines and filters the signal more.
Stoplosses for this sort of trading would be set where the Step NEMA dots appear on the chart where the entry signals are evaluated and eventually entered. Take-profits would be fix pip amounts based on ATR, or a countervailing Step NEMA signal, or when price crosses the stochastic signal line in the opposite direction or an additional indicator which gets out more rapidly than Step NEMA gets you in (I'm testing several of these).
The ATR on a low-timeframe chart is limited in slow markets, and price often does not continue in the direction of trade for very long before countervailing signals appear. When the market is more liquid (Tokyo alone before London, Tokyo-London overlap, first 2 hours of London alone, London-New York overlap), sometimes these can bring in 20 - 40 trades with ease and a few of these each day with correct position size can grow an account nicely. Sometimes, price will run in a highly trending market for an impressive distance, and because the baseline gets crossed so early after a swing point, you can grab much more of the pip run because you're on such a low timeframe. If you select higher timeframes, the stochastic baseline plus another baseline one timeframe higher still looks good and trade signals come less frequently with more pips to net between signals.