All About 5 and 30
A lot of discussion flies around OTCMethod about trading on the 5 and trading on the 30 for new members and long term members alike. So this article is to provide you everything you need to know about trading on the 5 and the 30 and debunk some of the myths.
What is 5 and 30?
5 and 30 is using 5 minute and 30 minute candles for your trading. This is the time-frame as each candle would represent either 5 minutes or 30 minutes of trading action. It does not really matter how many days you go back on the chart, as most people’s trading platforms just allow them to scroll back in time without having to select something like (30 minute, 10 day). So any time frame I mention going forward will specifically refer to a candle.
Why use the 5 and the 30 specifically? Why not the daily?
For intraday trades, or when the volume is exceptionally high I recommend using a 5 minute chart to maximize your profit potential. The general rule is that if it has a same-day, fresh catalyst you should be trading on a 5 minute chart.
From there on in, when it comes to longer trades and swing trades you should be looking to use the 30 minute chart. So if the catalyst the day prior was very exciting and you are looking to swing it then you would use the 30.
The reason for this is sensitivity. A 5 minute chart is reflecting the exact same information as the 30, but just zoomed in. I always refer to chart time-frames as being like a microscope you zoom in and out on. You can see here how the same chart looks zoomed in and out:
All of these charts are exactly the same (the 5 min. one on the bottom only goes to Aug 1 due to constraints in the platform), and you can see the single line I drew on that first daily chart still reflects the trend for all of them.
As the time-frames get more zoomed in you are really able to see the volatility in each day.
The ability to see that volatility on the 5 minute is why we look to trade on the 5 in the most volatile of times (news, catalyst, filing, etc.). In the days and weeks after the massive run the price action becomes significantly less volatile, and more reliable which is why we switch to 30 minute candles.
The reason I don’t generally use the daily with the OTC is because the market is generally illiquid, and even great tickers have a great way of getting completely ignored as the market moves on to other things.
How do I know when to buy and sell on the 5 and 30?
The indicator to use for trading on the 5 and 30 is our very own custom length KST and/or MACD. KST behaves similarly to MACD so if your broker does not have KST, MACD would be fine. I mention this because nothing about this method for managing your trades is about a magic indicator or a magic box, MACD is one of the oldest and best indicators of all time and my custom KST is just a nice tweak that works for earlier entries and exits sometimes. Many of our members use both.
Buying on the cross:
Entering a stock that is running or has already ran and you are looking for continuation is very simple, you are looking for your KST to cross the “Zero Line”, or the signal line (Red in this chart) moving upwards, and you can see where the crosses happened here and how good of entries they yielded:
You can see the buy-ins where the crosses occurred (red x) and the profits that came: .75–1.21 and 1.17 to 1.70 (so far).
Where should I have sold here?
Many times you may be in a situation where you are angry at yourself about selling too early and need a way to stop yourself from getting “shook out” and the KST/MACD method helps you avoid that happening. We call this the “3 candle rule”.
There is a lot of discussion about the candles and whether they should be red or green and the color of the candles has no bearing on whether or not 3 candles down is a sell signal. Lets look at a possible shakeout on this DCGD 30 chart:
There is a moment here on the first .75 buy on DCGD where it dipped and looked like it was losing steam and then quickly continued the next day. I have merged the KST into the candles to show you up close:
When the cross came in, 2 candles were fully formed with the cross below the red signal line, but the 3rd provided a massive “divergent cross” which is a strong sign of continuation.
By waiting for the third candle to be FULLY COMPLETED you were able to avoid selling too early.
Many tests of tickers and continuation find that both on the 5 and 30, waiting for thet 3rd candle to completely form is the best way to avoid selling too early.
The sell here was actually on the 4th candle after the downward cross. You may have noticed that there was a brief moment of continuation shortly after that you wish you should have grabbed, but that was a bull trap and the 5/30 method helped you avoid it as a period of consolidation began that would have allowed you to take it over 20% lower to maximize your profit.
Now we move to the second leg of this 30 trade on DCGD and the pickup at 1.15 with the zero line cross and at NO POINT should you have been compelled to sell so far up to highs of 1.70 to this point.
You probably note that the entry there is 1.15 as opposed to the possible .98 you could have gotten. The reason for this is confirmation. So many stocks have a great run and get left behind forever, so you need to be sure that the price action has the power to continue. In the 3 days since it crossed down, DCGD had essentially done nothing until that zero line cross and you were able to use your money to make money elsewhere in the market until it was ready for another leg up.
“Trying” with 5 and 30
In one of my first videos I said “Half of trading is trying” and I believe it to this day. If you have the principles in place with share structure, chart, etc. then all you need to do is bring that understanding to the table and try with things that are not obscenely baggy (fat trips, frontloads, etc.). Using 5 and 30 allows you to try with the confidence that for the most part your sell (even a loss) is the best plan. Today I tried a 5 minute trade on GBHL given some type of “Merger” filing that showed up on Nevada SOS. This filing was new today and caught the market off guard so I entered at .0022/23 to see if there would be any continuation:
After 3 candles down and a 4th beginning to form after the cross I realized I had bought too high and it was best to wait and see if there would be continuation on a “Reset” with the KST (green line) crossing the Signal line (red line). Later in the day the company would come to announce that the merger filing was fraudulent and the stock was crushed. There is a chance they could have announced it when it was reaching all new highs, I am not saying 5 is a hedge against the complete unknown but it is a hedge against becoming a bagholder due to a lack of continuation whether that is caused by disinterest from the market, dilution, or something extreme like this.
Final Thoughts (on)
The big thing about using this way to sell whether on 5 or 30 is that this allows you to feel comfortable in a situation in which you might have to chase. If you have ever sat there and looked at a runner with a crazy catalyst and said “this is too high for me” only to see it run another 300% over the course of the day then take heart because you can buy it! Just know, that 3 fully formed candles down on the 5 is your cue to get out. Is 3 candles 100% effective? No, but I think you will find it to be high probability.
Same goes for 30, load up your KST or MACD and go through your favorite runners over the last year like LFAP or VYST or DCGD or SHMP and you will find those entries on the 30 allowed you to absorb most of the profit they provided to you, and WAY more than just holding as those long, boring sell-offs were avoided using 3 candles.
You also need to be aware of the “Signal Line” This is the slow line (red on this chart). Sometimes you will experience upward crosses on a very downward signal lines, beware of these are they can be traps. The BEST cross is with a signal line that is either completely flat or upward.
Always remember though, if you are trading on the 5 you stay on the 5 and if you are trading on the 30 stay on the 30. Don’t flip flop!
