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Five Minute Flip

Outline:

1. Introduction
2. Steps
3. Real-time examples
Introduction
Five reasons why am I
doing this
1. For a long time I wanted to write down
my discoveries from over a decade of day
trading for my children, in case they
someday want to learn how to trade (and I
am not alive to teach them).

My grandfather traded the markets, and so


does my father. I do it now, and perhaps
one day my children may want to follow in
their dad's footsteps. But only AFTER
they finish their education.
2. I have learned a great deal from
Lawrence Chan's work, going back
many years to his published articles. I
like what he does and would like to
give something back.

If others find this useful, perhaps


others will do the same here.
3. I have often referred to the five-
minute flip in chat rooms, and decided
that it would make sense to make this
available for those who have questions.
Questions arise during trading days,
and I don't have time to answer them.
Hopefully, this will help answer
questions.
4. I am NOT doing this because I want
anyone's money (except for those who trade
in the same market I do). I am a trader who
knows that if he works as hard as he knows
he can, will make more money trading that
he ever could from writing trading books, or
teaching clients some high-priced
methodology or system. I asked Lawrence
to make this available free to all members,
including those not signed up for premium
services.
5. Feel free to use these concepts
but please give credit.

The charts here come from the


TWS Software, Interactive Brokers
Group.
Let's get this out of the way. Disclaimer:

There is no such thing as a perfect indicator, system, or tool in trading. Losses


are inevitable--in trading and in life. They can either be learning experiences
that can lead to greater, more profitable opportunities, or, if left to grow, career
killers that can force one to declare personal bankruptcy. One can choose to
learn to take small losses or, if left to grow, large ones. Either way, losses are
unavoidable, even if you use the five-minute flip every day and use it exactly
as described here.

I promise that if you use this as suggested, you will sometimes lose money.
The money from your account will “flip” to someone else's. How MUCH
money you lose is up to YOUR hunger for risk and YOUR brokerage's rules.
It is NOT up to me.

You have been warned.

I am not responsible for your losses (or, for that matter, your profits either).
No method or system (even this one) can rescue a trader condemned to failure
for refusing to treat trading as a serious business that requires self-discipline,
personal integrity, persistence, creativity, flexibility, patience, a willingness to
admit error, and hard work.
In a nutshell, what is the five-minute flip?
An intraday bias calculated after the 9:30 EST open on the
basis of the first several five-minute bars in the S&P e-mini
future (ES).

It is not a fancy name for some floor-trader pivot level or for


the overnight high, previous day's low, or some other level
evident before the market open.

It is something I discovered on my own from studying


intraday charts for several years.

This presentation will be most useful for those who traded


the ES day after day, starting and ending the day flat.
Steps 1-5:
Step One:
Look at the first five-minute
bar. Note its high and low.
Write them down.
Step Two:
Observe the first swing of
the day.
If the low of the second bar is lower
than the low of the first five-minute
bar, the day's first trend is DOWN.

If the high of the second bar is lower


than the high of the first five-minute
bar, the first trend of the day is UP.

If the second bar is an inside bar, then


wait until the first bar's H or L is taken
out.
If the market's first swing is UP
the five minute flip will be at an
area BELOW the low of the first
five-minute bar.
If the market's first swing is
DOWN the five minute flip
will be at an area ABOVE the
high of the first five-minute
bar.
Step Three:
Calculate the Five Minute
Flip.
If the market's first swing is UP,
take the swing high, and from
that subtract the LOW of the
first five-minute bar. Take the
difference, and SUBTRACT it
from the HIGH of the first five-
minute bar.
Example

High of first five-min bar = 1303


Low of first five-minute bar = 1300

If the swing high is 1305, the FMF will


be 1298.

Why 1298? 1305-1300= 5.

1303-5=1298
If the market's first swing is
DOWN, take the swing low,
and from that subtract the
HIGH of the first five-minute
bar. Take the difference, and
ADD it to the LOW of the first
five-minute bar
Example

High of first five-minute bar = 1250


Low of first five-minute bar = 1246

If the swing low is 1242, the FMF would


be 1254.

Why 1254? 1250-1242= 8.

1246+8=1254
What is a “swing high”
and a “swing low”?
If the first trend of the day is UP, then one
must start looking for the swing high.

A swing high is confirmed when a five-


minute bar prints below the low of the
highest five-minute bar of the day.

If the first trend of the day is up, one cannot


calculate the FMF UNTIL the swing high is
in. Sometimes that requires waiting for
several bars.
If the first trend of the day is DOWN, then
one must start looking for the swing low.

A swing low is confirmed when a five-


minute bar prints above the high of the
lowest five-minute bar of the day.

If the first trend of the day is down, one


cannot calculate the FMF UNTIL the swing
low is in. Sometimes that requires waiting
for several bars.
First trend of the day is DOWN (bar two had
lower low), so FMF will be up above the open.
First trend of the day is UP (see bar two), so
FMF will be below the open.
Step Four:
Understand the Significance
of the Five Minute Flip.
The FMF is a point of
reference, a way to
determine if the market has
accepted or rejected the
opening move of the day.
In particular, the FMF serves
as potential support and
resistance throughout the
trading day.

If the market is trading above


it, it should serve as support;
if below it, as resistance.
When it comes to the FMF
(and other such levels), if
what had been support has
turned into resistance, or if
what had been resistance
has turned into support, the
market has reversed.
Step Five:
Understand the Eight Principles.
Principles 1 and
2 address early
resistance and
support levels.
Principle 1
If the opening move of the market
is UP, the FMF (which by definition
will be BELOW the open) is
SUPPORT until it becomes
confirmed resistance.
Principle 2
If the opening move of the market
is DOWN, the FMF (which by
definition will be ABOVE the open)
is RESISTANCE until it becomes
confirmed support.
Confirmed support = Market trades
not just at but ABOVE RESISTANCE.
This then serves as support on a
retest.

Confirmed resistance= Market


trades not just at but BELOW
SUPPORT. This then serves as
resistance on a retest.
Principles 3 and
4 address strong
reversals off of
the opening
move of the day.
Principle 3
If the opening move of the market
is UP, and the market trades down
and through the FMF, AND the FMF
serves as resistance, the market has
almost certainly already made its
high for the day.
4/15/2013
1/14/12
Principle 4
If the opening move of the market
is DOWN, and the market trades up
and through the FMF, AND the FMF
serves as support, the market has
almost certainly already made its
low for the day.
6/13/2013
6/8/2012
Principles 5 and
6 address trend
days.
Principle 5
If the opening move of the market
is UP, and the market does not
even come close to tagging the
FMF, that is a sign that the market
is a strong intraday uptrend and the
market will likely close on its highs.
4/26/2012
6/6/2012
Principle 6
If the opening move of the market
is DOWN, and the market does not
even come close to tagging the
FMF, that is a sign that the market
is a strong intraday downtrend, and
the market will likely close on its
lows.
5/4/2012
4/3/2013
Principles 7 and
8 address trading
ranges.
Principle 7
If the opening move of the market
is UP, and the market trades down
to the FMF, but the FMF serves as
support, stopping the move, the
market should be considered as
being in a trading range having an
upward bias.
2/10/12
1/21/12
Principle 8
If the opening move of the market
is DOWN, and the market trades up
to the FMF, but the FMF serves as
resistance, stopping the move, the
market should be considered as
being in a trading range having a
downward bias.
2/24/2012
1/19/2012
Real-Time Examples:
NOT cherry-picking. ALL from the
same week, the week during which
I agreed to do this.
Example 1: Monday, June 3, 2013.

First, the chart.

Second, my own analysis (and, yes,


I traded according to this analysis)
Analysis
1. First move of the day was DOWN, and once the swing
low was in at 1626.75, the FMF was calculated at 1637.
2. Since the first move was down, the FMF above should
have been seen as resistance until proven otherwise as
support.
3. Note that there two clear attempts to get up to 1637.
The second time was around 10:30, when price was around
1636.25.
4. After that failure, within twenty minutes, the market
made a new low on the day.
5. Although the low for the day was made during the 11:00
hour, the market made an effort to get back up. Finally, at
the end of the day, the market made it to the FMF, the top
of the trading range.
Example 2: Tuesday, June 4, 2013.

First, the chart.

Second, my own analysis (and, yes,


I traded according to this analysis)
Analysis
1. Day's first move was UP, and once the swing high was in
at 1644.75, the FMF was calculated at 1635.25.
2. The FMF of 1635.25 should have been seen as support
until proven otherwise as resistance.
3. During the 12:00 hour, price was continually testing FMF
as support, until it finally broke with a big bear bar with a
close well below FMF. Sellers emerged.
4. During the 2:00 hour the market found buyers, and made
its way back to the FMF (to the tick plus a tick).
5.What was once support was at that point resistance,
since the FMF clearly failed as support during the 12:00
hour.
Example 3: Wednesday, June 5,
2013.

First, the chart.

Second, my own analysis (and, yes,


I traded according to this analysis)
Analysis
1. Day's first move was UP, and once the swing
high was in at 1628.25, the FMF was calculated
at 1620.75.
2. The FMF should have been seen as support
until proven otherwise as resistance.
3. At around 10:20, the FMF was tested, and for
several bars, served as support. Buyers did not
emerge.
4.What was once support was at that point
resistance.
5. Market closed near the low of the day.
Example 4: Thursday, June 6,
2013.

First, the chart.

Second, my own analysis (and, yes,


I traded according to this analysis)
Analysis

1. For the third day in a row, the day's first move was
UP. On the previous two days, the FMF was tested as
support and, once failing as such, proved to be
effective resistance.
2. Today, however, the FMF was tested twice, and after
a 1-2-3 buy signal (higher low), the market stayed in
the day's trading range. It closed right by the day's
high.
3. When the market was making new lows during the
12:00 hour, some bulls likely panicked and sold,
thinking the high of the day had already printed. BUT,
the bias was still up, as long as the FMF served as
support.
Question: What if the second
bar of the day is an OUTSIDE
bar? If the market takes out
BOTH the high and the low of
the first five-minute bar, how
can we tell the direction of the
first move of the day?
Answer: There IS no easy answer here. I see
three possible options (#1 is the best option, #2
is the second-best, and #3 is the least-useful):

1. Pull up a one-minute chart and see what was


taken out first: the high of the first five- minute
bar or the low. If the one-minute doesn't help,
keep dialing down.
2. Skip the FMF that day.
3. Calculate the flip on a 15 MINUTE basis. Just
apply the same formula but use 15-minute bars
instead of 5-minute bars.
Question: Whoa, hold
on here--15 minutes?!
Are you saying that the
flip can this be useful
on OTHER timeframes
as well?
Answer: Perhaps so. I
have not done sufficient
research to say for sure. I
DO see potential on
higher frames--daily,
weekly, or even monthly.
If and when someone DOES
the sufficient research to
find out if the FMF is
applicable to other time
frames, PLEASE SHARE your
findings on
daytradingbias.com.

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