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Traders often use 5-minute chart candles for short-term trading strategies like day trading and scalping, as they offer a closer look at price movements and trends within a trading day. This time frame allows traders to make quick decisions and capitalize on small price fluctuations. I, however, do not favor using the 5-minute time frame because I frequently encounter false breakouts, which can lead to misleading signals and potential losses. These false breakouts can make it challenging to determine the true direction of the market. Therefore, I prefer more extended time frames that provide more reliable data and reduce the likelihood of such deceptive movements.
The best MACD settings for 5 minute chart
The best MACD settings for a 5-minute chart are parameters 24, 52, and 18. They showed 5% better performance than default settings 12,26,9.
Experiment Case Study for 5-Minute Chart Best Settings Testing
In this experiment, we aimed to identify the best settings for trading using 5-minute chart candles by testing various indicators and combinations. We focused on the MACD indicator, channel indicators, and significant level indicators and evaluated their performance under different settings.
Indicators Used:
- MACD with Several Settings: We experimented with different combinations of the MACD indicator. The fast EMA settings tested were 12, 24, and 6; the slow EMA settings were 26, 52, and 34; and the MACD SMA settings were 5, 9, and 18.
- Channel Indicator: A custom channel indicator was used, although any channel indicator like the Donchian channel can serve the same purpose.
- Important Level Indicator: This indicator was based on previous highs and lows. Alternatives such as Pivot points or Fibonacci levels were also considered.
Trading Rules on 1-Minute Charts:
BUY Rules:
- MACD Signal: Enter a buy trade if there is a bullish MACD cross or a cross above the zero line.
- Significant Level Touch: Ensure the price touches a significant level identified by the critical level indicator.
- Bullish Channel: Verify that the price is within a bullish channel.
- Stop Loss: Place the stop loss at the last significant level swing.
- Target: Set the target at the next significant level.
SELL Rules:
- MACD Signal: Enter a sell trade if there is a bearish MACD cross or a cross below the zero line.
- Significant Level Touch: Ensure the price touches a critical level identified by the significant level indicator.
- Bearish Channel: Verify that the price is within a bearish channel.
- Stop Loss: Place the stop loss at the last significant level swing.
- Target: Set the target at the next significant level.
Combinations Tested:
- Fast EMA: 12, 24, 6
- Slow EMA: 26, 52, 34
- MACD SMA: 5, 9, 18
Through this study, we aimed to determine which combination of settings provided the most accurate and reliable signals for trading on 5-minute charts, thus optimizing our trading strategy and minimizing false breakouts.
Results of the Experiment
The experiment revealed that the best MACD settings for a 5-minute chart were found to be parameters with a fast EMA of 24, a slow EMA of 52, and an MACD SMA of 18. These settings outperformed the default MACD settings (fast EMA of 12, slow EMA of 26, and MACD SMA of 9) by a margin of 5%.
Key Findings:
- Improved Performance: The settings of 24, 52, and 18 provided signals that resulted in a 5% better performance compared to the default settings. This improvement was measured in terms of the accuracy of trade entries and the overall profitability of the trades.
- Reduced False Signals: The optimized settings helped in reducing the number of false breakouts, which are common issues with shorter time frames like the 5-minute chart. This reduction in false signals led to more reliable trading decisions.
- Consistency: The MACD settings of 24, 52, and 18 offered more consistent results across different market conditions, enhancing the trading strategy’s robustness.
These findings suggest that adjusting the MACD parameters can significantly improve trading performance on 5-minute charts, making it a valuable insight for traders seeking to optimize their short-term trading strategies.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
