This swing trading strategy uses a combination of moving averages, support and resistance, volatility and a few other tools to maximize profits from the trends in the Forex market. At the same, the strategy aims to keep stop losses and drawdowns to a minimum. Although this strategy can work well on all timeframes, it is best to be used on the 4h timeframe, which makes it highly suitable for swing traders. In this strategy, the 4h chart is used as the base chart this is where we screen for potential places on the chart where trading signals may occur and the 1h timeframe as the signal chart, or the trade chart where we execute orders according to this strategy.
If you choose to use a different timeframe as the base chart remember that you go one timeframe lower for the signal chart so if 1h is the base chart then the 30m timeframe is the signal chart. To determine if there is a trend or not we are going to use a set of two moving averages, out of which one is a 34 period and the other a 55 period MA. You may notice that these numbers are part of the Fibonacci sequence.
We can judge if a trend is worth trading or not by observing how the moving averages relate to price action. Note : For this strategy feel free to experiment with different types of moving averages like simple, exponential and weighted. Basically, the moving averages are a support zone during uptrends and a resistance zone in downtrends.
We are trying to profit on the swings in the direction of the trend. So, for this reason, we want to join the trend on the retracements. An example of how an entry with this strategy would look like is shown below. So, in total the stop loss, in this case, would be 32 pips.
But in the Forex market, the four-hour time frame takes on special importance. The market never closes, and traders are literally Trading the World. The four-hour candle represents half of each geographic trading session. Each of these sessions can take on markedly different tones, and that is where traders can look for potential opportunities. Image taken from Trading the World. Traders can use the price movements and gyrations on these four-hour charts to analyze markets, and find potential pockets of opportunity.
Watch for the close of each 4-hour candle that you can. Traders can then take a ten-minute block of time upon the close of each of these four-hour candles to look for potential trade setups, while also using this as an opportunity to manage risk. If the trader is awake for four of the six four-hour candles that form each day that would mean that the trader would need approximately 40 minutes per day to analyze charts.
If time permits, an additional minutes can be used at or around the daily close. The total time commitment required is minutes each day, for a total of minutes per week minutes is 4 hours. Trends in markets can be easily graded and seen with price action… by simply looking for charts to make progressively higher-highs, and higher-lows in the case of an uptrend , and lower-lows, and lower-highs for downtrends. In the article Price Action, an Introduction we look at a way that traders can grade trends without the use of any indicator at all, using just past prices.
Traders want to look to trade in the direction of these trends; buying up-trends, and selling down-trends. Traders can use price action to appropriate their entries into these positions. Once again, traders want to look to efficiently buy up-trends when price is cheap, or near support. We looked at how traders can find this support in the article, Price Action Swings. Traders can look for additional confirmation of the entry by looking to the price action candles that form at or around those swings.
By adding a stop and limit, and letting the trade work — the trader eliminates the possibility of making a knee-jerk reaction that they may end up regretting. It also enforces a favorable risk-reward ratio, and puts traders in the most promising spot to avoid the number one mistake that Forex traders make.
Since traders are looking at their charts for each four-hour bar, they have built-in trade management for each position that they take on. Traders can use the close of each four-hour candle as an opportunity to adjust stops particularly the break-even stop , or to take profits while also looking to trigger new positions.
Traders can take this a step further by trailing their stop in an effort to lock in gains in the event that the trend gets especially built-in. Why does the average trader lose money? We studied over 30 million trades to help you become a more consistent trader.
On page 4 of our Traits of Successful Traders Guide , we discuss the most common trading mistakes. The 4 hour trading approach requires a solid psychological foundation to markets. Check out our Building Confidence in Trading g uide to learn more about the mindsets behind trading. DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. Forex trading involves risk. Losses can exceed deposits. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Live Webinar Live Webinar Events 0.
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Part of this process is studying the market and working out a strategy for your trades. Those strategies vary based on the tools used to execute them. One of such tools is market charts and specifically intraday charts. Trading strategies based on intraday charts are commonly used among traders. However, choosing between time frame options can get tricky. On one hand you want your chart to be as informative as possible in order to make an adequate decision.
But on the other hand you cannot overload your brain with too much data, as it will not be capable to process it correctly. Forex 4 hour chart strategy has been globally acknowledged as the golden middle between small and large time frame charts. This method is best suitable for beginners as it requires less attention compared to lower frames. Another upside for beginners is that unlike other strategies of Forex trading 4 hour chart method does not require advanced skills.
Later, as the trader gains experience, they can move on to more detailed time frames such as 1 hour. The most important thing when it comes to using the Forex four hour strategy is not to use it on its own. Always have a higher time frame as a reference and use it when in doubt. Professional traders tend to use the Forex 4 hour chart strategy in combination with the daily chart strategy. Both daily and 4 hour strategies are widely used in so called swing trading.
I interpreted the strategy and came up with the following trading rules to trade continuations. These rules side-stepped the need to look for chart patterns. I left out the horizontal lines as we are not using them for our review. It shows the end of a long down trend. Given a wider stop and a conservative target, we might have a winning trade. However, the bullish bar three bars after entry should have stopped out most traders.
MACD is the common denominator of these trading strategies. However, the setting of the MACD indicator in this trading strategy removes its signal line. Essentially, the MACD has become a price oscillator. Also, the five moving averages are too much for me. While they offer a support and resistance framework, they clutter the charts. Nonetheless, this strategy is effective in picking up retracement trading setups.
It gives a decent starting point for momentum trading on higher time-frames. The 4-hour time-frame is unique to forex markets as it splits a hour session into 6 bars. To have more fun with this strategy, try it on the daily chart. In our review, we focused on trading trend continuations. Avoid MACD signals near or beyond the last extreme of the trend. This is because this strategy makes use of the principle of momentum preceding price. If price has already gone beyond the last trend extreme, then the price has already caught up with momentum.
The sweet spot of our trade timing is gone. Remember that this trading strategy presents far more opportunities than the continuation trades we looked at. The thousand-page forum thread has everything you need to learn about this trading strategy. He scales into a position if the stop-loss is too far away to cut his overall risk. Afraid that your strategy will fail in other time-frames? Learn a simple two-bar pattern that you can find on all time-frames. I am no expert in this trading strategy.
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Monthly/Weekly/Daily/4hr on EURUSD · find the overall price action context and trend on the daily time frame · find a key support level (for bear trends) and. Forex, a 4-hour strategy, is based on trend lines analysis using the 4-hour chart. Usually, indicators and trend lines on a 4-hour chart give trading. Best 4 Hour Rsi Forex Trend Trading Strategy · Wait for the 30 period moving average (yellow) to cross above the 60 period moving average (blue) · Place stop.