5-Minute Bar Definition
The 5 minute bar illustrates the summary of a stock’s activity for every 5 minute period within the trading session. The stock market is open for 6.5 hours per day; therefore, a 5 minute chart will have 36 five minute bars printed for every full trading session. Day traders are commonly trading 5 minute charts to identify short term trends which allows them to stay on top of their
The close on the 5-minute bar gives insight into the immediate market direction of trend for a stock. When a stock closes at the low or high of the 5-minute bar, there is often a short-term breather where the stock will go in the opposite direction. The psychology behind this is that the stock has been pushed to an extreme as other active traders chase the price trend. This breather can mark a major reversal, but in the majority of cases, it creates the environment for a .25% – .5% counter move.
In the morning stocks will trend hard for the first 20-30 minutes into the 10am reversal time zone. Day traders that are looking to go opposite to the trend can wait for a close at the high or low of the 5 minute bar to go opposite to the morning move.
Close at the Low of the 5-Minute Bar
Below is a charting example of NUE from 8/1/2008, where the stock had three black crows and then closed at the low of the bar. This exhaustive move to the downside led to a 3% counter move in 30 minutes.
Close at the High of the 5-Minute Bar
The below chart is from a morning reversal for the stock AUY, where the stock closed at the high of its bar and then had a sharp reversal.
Fibonacci Retracement Level Resistance
The below charting example is from 8/1/2008 where the stock UNH closed at the high of the bar at the 38.2% retracement. This caused a reversal back down to the morning lows.
Even if you are not trading 5 minute charts, it is essential that you keep an eye on them. The majority of day traders are using 5 minute bars to make their trading decisions. Therefore, these traders tend to control the action. If you are a trading with the 15 minute charts, be mindful that a sharp countertrend move can occur at the close of a 5 minute bar.
Remember, a close at the high or low of a 5-minute bar is a potential indication that a minor reversal is in play. Day traders should not immediately exit their winning position, but should rather look at this as a sign of a potential trend change.