This rule trades a break of the day's first 5-minute candle. If a later 5-minute candle closes above the first one's high it buys, and if one closes below its low it sells short, which is a bet that the price will fall. The stop sits at the other side of that first candle. It takes one trade a day and closes out five minutes before the bell.
The first candle is small, so the stop is close and each loss is small. The cost is that a range that small gets crossed and recrossed a lot, and every trade pays commission and slippage.
It's the only strategy here that beat holding on any stock, and it did it once, on Microsoft. It made money on two of the five stocks, Microsoft and QQQ, and lost on the other three. Microsoft rose the least of the five over these dates, so holding it was the easiest bar to clear.
In the table, the biggest drop is the most the account fell from a high point before it recovered.
| Stock | With the strategy | Just holding | Trades | Biggest drop | Backtest |
|---|---|---|---|---|---|
| SPY | $9,834 (-1.7%) | $14,640 (+46.4%) | 631 | -10.1% | See the backtest |
| QQQ | $12,752 (+27.5%) | $16,578 (+65.8%) | 630 | -12.9% | See the backtest |
| IWM | $9,564 (-4.4%) | $13,462 (+34.6%) | 630 | -19.7% | See the backtest |
| AAPL | $9,191 (-8.1%) | $19,418 (+94.2%) | 619 | -35.2% | See the backtest |
| MSFT | $12,492 (+24.9%) | $12,112 (+21.1%) | 620 | -9.8% | See the backtest |
Read the study behind this strategy
How we tested
We ran the textbook rules on 5-minute candles on SPY, QQQ, IWM, Apple and Microsoft from Mar 26, 2024 to the end of last month, in the same Backtest tab you can use. Every strategy on this site starts on the same day, the first day the slowest of them, the golden cross, could trade.
Every test starts with $10,000 and puts the whole balance into each trade, with no borrowed money. Costs are the tester's defaults for stocks: half a cent a share in commission and a cent of slippage on every fill. Slippage is the gap between the price you wanted and the price you got.
"Just holding" buys the same stock at the open on the first day of the test and keeps it to the end.
Questions
Does the first 5-minute candle breakout beat buying and holding?
Only on Microsoft. On the other four stocks, just holding did better after costs.
Is this the same as the opening range breakout?
It's the same idea with a much smaller range, the first five minutes instead of the first thirty. That puts the stop closer and makes for a few more trades.
Can I test it on a different stock?
Yes. Press "Try it yourself" to open the Backtest tab with the first 5-minute candle breakout already loaded, then change the stock. Without a paid plan you can reach less history than we used, so your numbers can differ.