The 5-1 strategy was developed by the Danish day trader Hans-Henrik Nielsen from Markettimer, known for his simple yet effective strategies. The 5-1 strategy is a distinct day trading strategy. It can be used in its simplest form, but it can also be advantageously refined with additional indicators.
The strategy is applied in the German DAX index and is based on two charts, namely a 5-minute chart and a 1-minute chart. On both charts, a 10-period Exponential Moving Average (EMA) is applied.
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The strategy is based on a scenario where the 5-minute chart shows declining lows and declining highs. In this situation, you wait for the moment when the price on the DAX in the 5-minute chart drops below the EMA line. At that point, you shift your focus to your 1-minute chart and are ready to execute a short trade when a 1-minute candle closes below the 10-period EMA.
The stop is now placed just above the previous high on the 1-minute chart, and the target should be at least equal to the size of the stop. If the stop is 18 ticks, one should aim for at least 18 ticks in the target, and so on. If the market moves quickly in the direction of profit, it can be advantageous to move the target downward.
The strategy can, of course, also be used to go long. Here, you look for rising highs and rising lows, while the price must now naturally break the 10-period EMA from below and up.
Hans-Henrik Nielsen also trades the strategy on longer timeframes (1-hour charts), where he combines the strategy with oversold/overbought indicators. However, on longer timeframes, the strategy requires significant experience or smaller stakes, as the impact of a single loss becomes proportionally larger on a longer timeframe.