Day Trading Strategy on 15-Minute Chart in Four Steps

With this day trading strategy on 15-minute chart, we can catch profitable trading opportunities and stay away from fake signals.

The 15-minute chart is a good choice for intraday trading. However, we cannot make a good trade by merely looking at the chart. We also need a nice and proper day trading strategy on the 15-minute chart, including a set of indicators and entry/exit rules.

Fast broadband and mobile connections have made it possible for us to access a multitude of real-time market data, which has greatly contributed to this development. They encourage more people to place transactions continuously throughout the day in an effort to profit from market volatility as prices rise and fall. 

But what kind of day trading strategy should we use? Should we utilize something slightly more complex or stick with the basics? This article will discuss all the options available to us.

The First Step: Determine Your Approach

The first step in creating a reliable day trading strategy on 15-minute chart is determining what kind of approach we will take. It can be a price action strategy, a range trading strategy, an indicator-heavy strategy, and many others. But these three styles are the most commonly used on a 15-minute chart.

• Price Action Strategy
  Many day traders propose a "clean" approach to their day trading strategy. They prefer not to stuff their charts with numerous indicators in an effort to check and recheck the direction of the market. Instead, they will only pay attention to pure price action, that is, price movements as shown on the candlestick charts.
  
  
• Range Trading Strategy
  While formulating their strategy, some day traders find it helpful to keep an eye on the high and low from the previous day. This is actually quite reasonable considering yesterday's high was the turning point in market sentiment when the sellers returned, driving the price lower (meaning that the price was excessive). On the other hand, the previous day's low demonstrates where buyers' confidence returned as they decided to buy because they believed the market was undervalued. As such, these levels can be significant and serve as the basis for a day trading strategy.
  
  
• Indicator Strategy
  As the name suggests, it is an approach where day traders apply at least two technical indicators on the chart to help them find the next trading opportunity. There are no exact upper limits on how many indicators we can apply to one chart. But most experienced traders agree not to overcrowd the chart so much that we cannot see the candlesticks clearly.

The Second Step: Choose Your Indicators

Some experienced traders may confess to having gained success through price action strategies. Unfortunately, not everyone can do it properly, as beginners usually do not have the necessary knowledge and intuitive responses toward price actions yet. 

If you are new to trading, the only option is to make use of indicators and range to deepen your understanding first and then learn price action. Worry not, the simplest strategy can also generate satisfying results—as long as you use it skillfully. So, the second step in creating a reliable day trading strategy on 15-minute chart is to practice trading using several different types of indicators on a demo account.

The question next is, which indicators should we use? Here are three indicators we would recommend for a good day trading strategy on 15-minute chart:

• Moving Averages (SMA or EMA) to determine the trend of the market. It is a lagging indicator, which means the indicator will only change after prices have changed.
• Relative Strength Index (RSI) to measure momentum, that is the strength or weakness of certain price movements. It is a leading indicator, which means RSI will give a signal before prices change.
• Average True Range (ATR) tracks volatility, which is how much the price of an asset has changed over a specific amount of time. Day traders who are seeking to decide where to put stop-loss and take-profit orders will find this information to be helpful.

The Third Step: Adjust Your Chart

The three indicators are readily available on Metatrader or any other trading platform we use. However, their default settings may not be suitable for day trading strategy on 15-minute chart. As such, we have to adjust the indicator settings manually.

In this article, we will apply a combination of two Simple Moving Averages with periods 14 and 5. The RSI length is lowered from the default of 14 to 10. Meanwhile, ATR will stay in default settings. Here's how they look on the recent EUR/USD 15-minute chart.

Before moving forward to the fourth step, you need to first learn how each of the three indicators works. Here are several bits of key information you should have:

• Trend-spotting with Moving Averages: If a moving average is rising, it means the asset is in an uptrend. Conversely, when a moving average is falling, it means the asset is in a downtrend.
• Buy and sell signals from MA crossovers: A crossover occurs when a shorter period MA crosses a longer period MA. In this article, it means crosses between MA-14 (green) and MA-5 (red). When MA-5 crosses MA-14 upward, it signals a buy opportunity. When MA-5 crosses MA-14 downward, it signals a sell.
• Overbought and oversold areas on RSI: Overbought areas lie above 70, while oversold areas lie below 30. Prices tend to reverse when they arrive in these areas, but the signals are less reliable and have to be confirmed with other indicators.
• RSI divergences: Divergences indicate a change in momentum. When prices move to form a new higher high, while the RSI falls to a lower high, it means bullish momentum is weakened. When prices move to form a new lower low, while the RSI falls to a higher low, it means bearish momentum is exhausted.
• Volatility-reading with ATR (Average True Range): There are several ways to use the ATR, but the simplest one is by looking at the ATR value. The higher the value, the higher the probability of a reversal or trend change. The lower the value, the weaker the probability of reversal.

The Fourth Step: Execute Your Strategy

We can obtain trading signals by analyzing the chart, combined with the aforementioned key information. As practical examples, we will specifically discuss the following marked areas:

You can see that the RSI moves downward from the overbought area (1). This is usually a sell signal, but we have to confirm it. ATR value is down, so this is unconfirmed. Then the MA crossover confirms the sell signal. We can conclude that this is a fairly weak sell signal, but you can still open a short position with a tight profit target and stop loss.

On number 2, the RSI moves downward from the overbought area, then the ATR increases and the MA crosses again. This is a far stronger sell signal compared to the first example. You can keep a short position open for as long as it goes. Close the trade only when the RSI enters an oversold area and/or the ATR falls.

RSI moves out of oversold territory (3). However, both Moving Averages and ATR continue to go down. As such, this is an unconfirmed buy signal. Keep on the lookout for another signal.

Practice this day trading strategy on your demo account while reading more articles about relevant indicators, and you will soon be ready to trade for real on 15-minute chart. Good luck!