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Five minutes to fame in the E-mini

By Al Brooks

April 15, 2008 Reprints

Trading does not have to be complicated. For most traders, if they take time to look carefully at
candle or bar charts, they will quickly discover that price action alone is all you need to observe
to be successful. As a bar develops, consider the tone of the market, whether the bulls or bears
are in control, and more importantly, who is trapped and who will have to get out. It can be
that simple.

While this approach works with all time frames and all markets, it is e cient on ve-minute
charts of the E-mini S&P 500. Typically, there are from 10 to 20 set ups per day on the ve-
minute time frame, which is far more than needed to do well. If you trade enough contracts,
you only need to net one or two points a day to succeed. Quotes by TradingView

Its typical is a ve-minute chart depicting a normal day in the E-mini S&P 500, while First
shift is a closer look at the rst four hours of trading. For example, 37 is the 37th bar of the We Asked Traders more >>
day. By reviewing the price action as this day unfolds, we can point out several opportunities as We asked traders what
they occur. Along the way, we might refer to various formations, but general price action, not
FBI Director Comey's
speci c patterns, will be our primary guide.
testimony means for
stocks and other markets

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As a rule, it is usually best to enter a trade on a stop one tick above or below the prior bar
because you want the market to take you into the trade. Place your protective stop at one tick
beyond the prior bar until you can scalp out of part or all of your trade. Alternatively, risk four
to 12 ticks, depending on the size of the average bar. Volatility more volatility>>

If youre letting some contracts swing, move the stop to breakeven after taking four ticks pro t
Retail is in trouble
on the scalp portion. Often, it is more pro table to just scalp for four ticks, but when there is a
because of economic
strong reversal at a possible high or low of the day, or when there is a strong trend, it is far conditions. What does
better to swing part or all of your position. this mean for the
markets?
SET UPS
Financials more nancials>>
One important concept is that of a High or Low 1 or 2. Heres how it works. The rst time in an Daily Price Action: E-mini S&P 500
upswing that there is a bar that has a low below the low of the prior bar, that bar is labeled L1
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(Low 1). Examples are Bars 5 and 41 in First shift. The next occurrence is an L2, such as Bars
7, 28 and 45. Bar 38 is an H1 and Bar 15 is an H2. There are several nuances to this approach,
and one or two will be seen as the day unfolds.

Options more options>>

Another concept involves signal and entry bars. A signal bar is a set up but not yet an entry. If
Election play in gold
the next bar extends one tick beyond the high or low of the signal bar, then that bar becomes options
the entry bar. Often, it is wise to enter on a breakout of either side of a signal bar. For example,
if there is a bull signal bar and if the next bar takes out the low instead of the high, then its
usually a good idea to go short because the existing trapped longs will drive the market down
as they cover. Bar 25 is such an example. It is a bear reversal bar at a new swing high that
never triggered a short entry. It also demonstrates why its important to place an entry stop at
one tick below the signal bar to go short and another to go long on a stop at one tick above the
high of the signal bar.

The example day opens with a large gap down from the previous days strong close, leaving all
traders who bought into the close with a substantial open loss. Whenever there is a large gap
down, the bears are momentarily in control. Bar 1 has a down close but a ve-tick downward
tail, indicating that some buyers do come into the market.

At this point, two things are worth looking for over the next hour or so. First, theres a bullish
reversal bar after some additional selling (this occurs at Bar 3), and then a short entry on an L2
near the 20-bar exponential moving average, which forms at Bar 6, leading to a new low of the
day. Because the bears are in control, an appropriate order would be a short entry on a stop
one tick below the low of Bar 1, with a plan to scalp four ticks of pro t. However, a good option
might be to swing up to one-third of the position because some gap days form the high on the
rst bar; although its rare, the rewards sometimes warrant the risk. Considering the market is
above the starting level of the previous days strong bull close and Bar 1 is attracting some
buying pressure, its probably a good move to forego carrying any swing contracts until more
bearish strength presents itself.

The four ticks of scalp pro ts we were after come on Bar 2. It was a strong bear bar with a
large body and a close near its low.

Bar 3 is always critical because it determines the look of the rst 15-minute bar of the day. Bar
3 is often a smaller bar and a reversal bar, and it often works well to enter on its breakout in
either direction. Here, it forms a strong bull reversal bar with a low below the low of the prior
bar and a close near its high and well above the close of the prior bar. Whenever a strong
reversal bar occurs in the rst 15 minutes or so on a day with a large gap open, odds are high
for at least a scalpers pro t on the trade (four ticks net, which requires a move that extends at
least six ticks beyond the high of the signal bar).

An L1 within a bar or two of the long entry often also traps bears into shorts and traps longs
out of a good long, so consider exiting the long on a three-point stop since the set up is
particularly strong. Consider exiting prior to the stop being hit if there is a new swing low or a
pullback that reaches about 75% of the move up (the low of Bar 3 to the top of Bar 4); however,
neither could happen in the example case because the three-point stop would be hit rst. If
Bar 5 extends more than two or three ticks below the low of Bar 4, the bulls are likely in
trouble, but one tick is usually safe.

ADDING & REVERSING

Often, any move below the low of the bar after the entry bar (if the set-up is strong) is a stop
run trap, making that a good place to increase any existing long position. In this case, because
Bar 5 reaches 11 ticks below the entry of the long from Bar 4, the market probably will run up
about 11 ticks or more above the entry. The market often moves the same distance as the risk
it forces you to assume. Here, a good trade would be to take half of pro ts at four ticks, which
happens on Bar 5, and to take another 25% o at 10 ticks (just shy of the 11-tick goal). This is
reached on Bar 6. The stop now can go to breakeven on the remaining 25%, with a
consideration of reversing to short on an L2 near the EMA. Countertrend moves often end
after two legs and often around the EMA. Bar 6 has a large bear tail that tags the EMA, and it
breaks above the prior high of the day (Bar 1), forming something of an awkward double top
(Bars 1 and 6). We should look to reverse any longs under this bars low. Again, the price action
calls for a scalp of four ticks on half or a third of the position, with the protective stop moving
to breakeven for the remainder, and the rest coming o at any new low for the day (and
possibly another reversal to long) if the market keeps dropping. In this case, with an order to
reverse to long at one tick above the high of Bar 8, Bar 9 will get us long. Because the market
has had several reversals this day, it is a signal to switch to scalp-only mode until a strong
swing.

However, markets are fundamentally unpredictable, and we get that on the next bar. Bar 10
again tests the EMA and fails, forming a bear reversal bar. This is the second test of the EMA,
and second tests usually lead to big moves. Also, it forms a downward-sloping double top with

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the high of Bar 7 (it could not go above this entry bar of an earlier short). So, its fair to expect a
breakout of the range for a measured move down (a move that extends below the range for as
many points that made up the range, here nine points from the high of Bar 6 to the low of Bar
8). Scalp out four ticks on Bar 11 and move the stop to breakeven. Plan to take more pro t at
just shy of nine points, which happens on bar 17.

Bar 13 is a large bear trend bar and a breakout to a new low of the day. Large trend bars that
break out often fail on the following bar. However, there have been several signs of the bears
controlling this market, so the move likely will extend for at least a second leg down. Bar 16 is
also a test of earlier short entries (below Bar 8 and again below Bar 12). At the close of Bar 14,
you should place an order to add to your shorts at one tick below its low. This is not lled. Bar
16 is the third up bar, but both it and the prior bar have small bull bodies and big tails,
indicating that the bulls are not strong. Move your sell stop order up to one tick below the low
of Bar 16. You are lled on Bar 17.

THE TURNAROUND

Bar 18 is a small inside bull bar (neither high nor low extend beyond the prior bar). Inside bars
often proceed a reversal and usually indicate a higher low on a smaller time frame. A higher
low is a necessary component of a bull swing, so place an order to reverse to long at one tick
above the high of Bar 18 and an order to add to your shorts at one tick below its low. The
result would be a new short on Bar 19 and a four-tick scalpers pro t during Bar 20.

Bar 20 is another small bull reversal bar. This second attempt at a bull reversal adds to the
conviction that the bulls are taking control and that the bears are taking nal pro ts. Having
been stopped out of all remaining short positions, we would place an order to go long at one
tick above Bar 20 and a second order to go short at one tick below its low. Bar 21 extends
above the high of Bar 18, the rst bull signal bar that wasnt con rmed. Bar 18 appears to be a
one-minute swing high, and now the market has a higher high. Though the rst high was not
part of the bull leg, going above it is a sign of strength. Bar 21 also breaks the bear trendline
across the tops of Bars 10 and 16.

Bar 23 reaches down exactly to the high of the long signal bar (Bar 20), just far enough to run
stops. If you exit, you would have to return to long at one tick above its high because you
would now have a small higher low and a successful test of the breakout into a bull swing. Also,
it is a test of the trendline breakout. Signs that the bulls are gaining strength is con rmed on
Bars 24 and 26. Bar 24 reaches above the high of the minor prior high at Bar 22, so there is
now a higher high after a higher low. Bar 26 extends above the Bar 16 high, forming a higher
high. The market runs up to Bar 31 without a major pullback, which is a sign of su cient
bullish strength that traders will be looking for at least a second leg up after a pullback. Bars 26
to 33 all close above the EMA. At this point, you should expect at least one more leg up after an
attempt by the bears to reassert themselves.

BIGGER SWINGS

The sell o down to Bar 37 also breaks the bull trendline from Bar 20 to 31. The bear trap is set
and the new bears are worried by their inability to move the market down forcefully. Also, bulls
are eagerly looking for any sign of strength to add to their longs near the EMA. Bars 35 and 37
have down closes, and they are two attempts by the bears to gain control and both fail. Bulls
go long and bears exit at one tick above Bar 37. This results in a signi cant higher low. Bar 38 is
a strong bull trend bar that broke above the EMA and broke above the bear trendline from Bar
32 to Bar 34.

Now, you should expect at least two legs up, which the market gives you: one ending at Bar 41,
and the other at Bar 45. Bar 43 is a new high for the day and a huge second leg up (Bar 20 to
Bar 31 was the rst). This second leg up also had two legs (Bar 37 to Bar 39 and Bar 41 to Bar
43).When the day is not a clear and strong trend day, you should always be looking for set ups
that allow you to fade new swing moves and new highs and lows for the day. Bar 43 gives you
several and you would sell, expecting at least a scalpers pro t and likely two legs down.

This approach is di cult to quantify and requires practice to develop a feel for the market;
however, once learned, it works consistently. For most of us, the ve-minute chart is the best
time frame, providing enough time to spot most set ups and enter the market. The ve-minute
chart o ers an incredible opportunity to a day-trader if you remain patient, trade within your
means and take time to understand what the price action is telling you.

Al Brooks, M.D., stopped practicing medicine 20 years ago to raise his kids. He has been day
trading for his personal account ever since. He can be reached at [email protected].

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About the Author

Al Brooks, M.D., is author of the Brooks Trading Course (27 hours of videos at
BrooksTradingCourse.com), several books on Price action (Reading Price Charts
Bar by Bar: The Technical Analysis of Price Action for the Serious Trader, Wiley,
2009, and the 500,000 word, three-book series, Trading Price Action, Wiley, 2012),
and numerous articles in Futures Magazine. He also provides live intraday E-mini
price action analysis and free end-of-day analysis on
www.brookspriceaction.com.

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