5 EMA alert candle
The 5 EMA strategy is one of the most widely taught intraday reversal setups in India. It waits for a candle that has stretched completely away from its 5-period EMA, called the alert candle, and trades the break of that candle back towards the average. This version trades NIFTY futures: shorts on 5-minute candles, longs on 15-minute candles, with a reward twice the risk.How it trades
Results
PRE-BUILT · DEFAULTSWhere it made and lost money
No market condition in this test was profitable, but the size of the losses shows why. Trend days that closed near their high or low were the worst, losing ₹1,53,809 over 303 trades with a 25% win rate: in a trend, candles keep stretching away from the 5 EMA, so every break of an alert candle is only a pause before the move resumes. Choppy, wide-range days lost far less, ₹39,605 over 270 trades, because snap-backs towards the average actually happen there. Uptrends going in cost ₹1,99,904 over 484 trades, and nervous markets with India VIX above 14.5 lost ₹1,19,782.
About this strategy
- Build 5-minute and 15-minute candles from NIFTY near-month futures and a 5-period EMA on each.
- Short setup: a completed 5-minute candle whose low is above the EMA becomes the alert candle; a newer such candle replaces it.
- Sell one lot when price trades below the alert candle's low, with the stop at its high and the target twice that risk below the entry.
- Long setup mirrors it on 15-minute candles: an alert candle whose high is below the EMA, bought on a break of its high, stop at its low.
- Take signals only between 09:20 and 15:00, one trade at a time; after each trade a fresh alert candle is needed.
- Close anything still open at 15:20; alerts do not carry over to the next day.
Why traders use it
When a candle sits entirely above or below a fast moving average, the move has stretched, and a break of that candle's extreme is an early sign it is snapping back. The alert candle gives a precise entry, a tight logical stop and a fixed reward-to-risk ratio, so the rules fit on one line. Its popularity comes from that simplicity and from the appeal of a system that needs only one winner in three trades to break even before costs.
The year in plain words
On NIFTY futures from 1 Oct 2025 to 30 Sep 2026 the rules took 1,004 trades and lost ₹2,78,583 before costs, with a 31% win rate and a profit factor of 0.79. After ₹20 per order and bid-ask slippage the loss grew to ₹3,95,252. With a 1:2 target the strategy needs a win rate above about 33% to break even before costs; 673 trades hit the alert-candle stop, 267 reached target and 64 closed at 15:20. Only January and June 2026 were positive. April 2026 was the worst month at ₹97,424 lost, and the maximum drawdown before costs was over ₹3 lakh.
What the settings do
Risks
- Over 1,000 trades a year means costs, at roughly ₹117 more per trade after slippage, compound quickly.
- Long losing streaks are normal at a 31% win rate, and the drawdown passed ₹3 lakh in this run.
- Stops on tall alert candles can be wide in rupee terms for a futures lot.
- Live fills during fast breaks can be worse than the breaking tick assumed in the backtest.
Who it suits
Active intraday traders who want to see a famous rule set tested without discretion, can monitor futures through the session or automate it, and can sit through long streaks of small losses.
Questions traders ask
What is the 5 EMA strategy?
It is an intraday reversal setup. An alert candle is one that does not touch the 5-period EMA at all. A break of its low (for a candle above the EMA) triggers a short; a break of its high (for one below) triggers a long. The stop goes at the other end of the alert candle.
Is the 5 EMA strategy profitable on NIFTY?
Not in this backtest. On NIFTY futures from 1 Oct 2025 to 30 Sep 2026 it lost ₹2,78,583 before costs and ₹3,95,252 after ₹20 per order and bid-ask slippage, over 1,004 trades. Statutory charges were not included. Past results do not guarantee future ones, and other timeframes or targets may behave differently.
Why are shorts on 5-minute and longs on 15-minute candles?
That split is part of the widely taught version: shorts on the faster chart because falls tend to be quicker, and longs on the slower chart to filter weaker bounces. Both timeframes are settings, so either can be changed.
What does 1:2 risk-reward mean here?
The target is twice the distance from entry to the stop. If the stop is 20 points away, the target is 40 points away. In theory one win covers two losses, so the strategy needs to win more than a third of trades before costs.