Five Tick Trading System

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Five Tic Trading

Our Objective

As hinted at, our main priority is to make a profit every single day we trade. Not a fantastic amount, but a profit. Trading this way gives us confidence in the methodology that then allows us to increase the size of our trades and thus increase our income. Does it matter whether you make $1000 by having a market move 100 points at $10 per point, or move 10 points at $100 per point. The end result is the same, and the point is that getting a 10 point move out of a market is far easier, and happens more often than a 100 point move. That is the whole rationale of Five Tic Trading. Small moves that happen often. Losers happen. Unfortunate fact of life and utterly unavoidable in trading. When they do, for us we simply lower our sights for that day and settle for a break-even day. This is just so important from a psychological viewpoint. You cannot keep losing day after day and keep faith with the system you're using. At some point you will give up on it. With Five Tic we try and avoid that trap by at worst break
ing even. That way we're fresh tomorrow to do it again full of confidence and not having the thought that today we have to make up for yesterdays losses. Today we can make a profit.

Five Tic Trading
Let's Get Started...

I'll discuss the way we apply the Five Tic method quite quickly then start to go over in depth the ifs, buts, and detail stuff later.

This method applies to the S&P, Dow Jones, and Russell. I have also used it on a few other indices with the same success, I don't however have all the details for other markets thanks to a computer crash. These 3 markets will, however give ample opportunities as you will see. We attempt to pick tops and bottoms using a simple indicator and then use the price action to grab a quick correction against the prevailing trend, often it turns out to be a real top or bottom and the market takes off in a new trend. We however are long gone. This is not a trend following method, it's a grab an opportunity and run for it, method. It works. The indicator we use is the Commodity Channel Index (CCI) set at 45 periods with the measurement being the High+Low/2. This is available on pretty well all charting packages. We look to Sell when this indicator exceeds 200 and Buy when it falls below -200. This indicator is based on the statistical variance of the price now to where it has been in the last 45 bars. But if you really
want to know more then your charting package will give you more details; you really don't need to though. We use a one minute real-time chart and when we get a buy or sell signal from the CCI we trail an entry order just above or below the market so that we quickly catch a market reversal when it happens. (Note When not If, no market continues in one direction for very long, and that's we're betting on) Once that order if filled we try to add another order to obtain a better average price. Sometimes it gets filled sometimes not. Our profit target is just a small distance away and an order is placed as soon as our first order is filled. Sometimes if the market starts to move against us a stop-loss order would be entered but often that's not required. Usually our profit target will be hit and we have one of two winning trades for the day in the bag. Repeat a second time then turn the computer off and go play! What's it look like in real life?

Five Tic Trading

Let's explain this picture. At 14.30 (9.30 est) the market opens and drops a fair amount which causes the CCI to fall below the -200 line (in pink) As soon as this happens we enter a "buy on a stop" order at 1 tic above the high of the signal bar. As you see the very next bar opens then goes up through our buy-on-stop order. We immediately enter a "buy on a limit" order as shown at the high of the signal bar. We also enter a "sell market if touched" order at our profit target of 5 tics above the high of the signal bar. In this case our buy-on-limit wasn't filled as the market just went straight up to the 5 tic profit target and hit our sell-market-if touched order. (NOTE The "2" would apply had the limit order been filled, as only the stop order was filled then of course it's just "1" MIT). That's one profitable trade - next.......