Raghee Horner on why patience pays off when waiting on short-term market clarity.

I’ve been talking quite a lot about my short-term, intraday trading strategy, 'Between the Greens', because it takes center stage in my trading this time of the year. I’ve also stressed the importance of a short-term strategy when there is confusion and a lack of a clear bullish or bearish directional bias in a pair.

Expecting longer-term organisation of sentiment, momentum, and therefore a trend when there is no clear trend on the daily time frame is a difficult position to be in. However, it’s not that the five-minute strategy does not require organisation, it simply is on a much shorter scale. It still will take time (albeit less than that of – for example – the 15 or 30-minute time frame) for a five-minute trend to develop.



The five-minute USD/CAD trending lower at a “four to six o’clock” angle (left) compared to the lack of clarity and congestion (right). The downtrend offers opportunities to short into the bounces. The entry zone is created by the area between the 13 and 21 period Exponential Moving Average (EMA) but only when the time frame is in a trend.



The 13, 21, 34, and 55 period EMAs are the visual tools needed to trigger and manage a “Between the Greens” entry but the 34EMA Wave is still important because there must be a trend (up or down) on the five-minute chart, for this strategy to be valid. Notice the difference between the moving averages when there is a trend (left) versus when there is no trend (right). The trend shows the clear zone between the 13 and 21 period EMAs for the intraday entries as the market moves lower.

These charts were taken from the five-minute USD/CAD which is heading lower on the strength on crude oil. Crude has broken the 200 day Simple Moving Average (SMA) on the daily time frame and this in and of itself is a bullish move that is still carrying the loonie higher.

While daily crude oil has a clear bullish Directional Bias, the daily chart of the USD/CAD does not and this makes the shorter-term time frames (the five, 15, and 30-minute charts) my focus. In fact consider that the 60 and 240-minute time frames have yet to truly rollover and indicate a downtrend. Add to this the fact that the daily chart’s range support is waiting between 1. 0069 and 1.0053 and that this could lead to the intraday downtrend finding support, exhausting and shifting directions of moving sideways about 50 pips above parity.

The tools of this trading set up are simple because the time frame does not lend itself to time-consuming fuss and muss. The set up is almost completely visual – again – because taking too much time to consider the entry could lead to missing the entry trigger altogether. Equally important is that the “point of validity” (the price level at which the entry is no longer valid and thus the stop loss point) is as easy to identify as the entry.

I call the set up “Between the Greens” because the entry is triggered by the 13 period EMA close and the 21 period EMA close which are colored light and dark green, respectively.

The set up MUST BEGIN with either an uptrend or downtrend on the five-minute chart which means that the 34EMA Wave must first be travelling at a “twelve to two o’clock” or “four to six o’clock” angle. Then the set up basically becomes an intraday swing trade which means that once the trend is identified, the entry is triggered by a trend correction to the area between the 13 and 21 period EMA aka “the Greens”.

The 34 period EMA close serves as what I call a “warning track” and this moving average is the first layer of the trade entering a deeper correction and possibly even an intraday trend reversal. Its role is to act as nothing more than a wake-up call. The 55 period EMA close is the point of validity for the trade which means if it is pierced by three to five pips, the trade is stopped out. There are some exceptions to this level and that would be a significant support or resistance level that has proven itself within the past three to five days and/or the “00” major psychological level which can act as significant support or resistance.

This strategy – and generally any shift to primarily shorter-term time frames – come from a lack of bullish or bearish Directional Bias on the daily chart. If there is not a dominant trend on the daily, I then question the degree to which longer-term time frames can follow-through. I would rather not rely on this in a sideways (daily) market and therefore will focus on short time frames like the 15 and five-minute since they require less organisation of sentiment and momentum, as compared to the 60, 240-minute, and daily charts.