Will 4 Hour Chart Trend Following Strategy Ever Rule the World?
With this 4 Hour Chart Trend Following Strategy, the most important goal would be to exploit the favourite expression in the gambling universe” the trend is your friend”. This swing trading strategy utilizes a combination of moving averages, support and resistance, volatility and also a few other tools to maximize profits from the trends within the Forex market. At the very same time, the 4 Hour Chart Trend Following Strategy intends to maintain stop losses and drawdowns to the very least.
Although this plan can perform well on most of the time frames, it’s ideal to be used on the 4 Hour time frame, making it highly acceptable for swing traders.
The Principal cornerstones of This Plan are as follows:
We will need to get a trend. This 4 Hour Chart Trend Following Strategy rests on tendency behaviour and without one that it ostensibly cannot be used.
We can evaluate whether a fad is worth investing in or maybe not by observing how the moving averages relate to price action.
To decide whether there is a trend or not we are getting to utilize a group of just two moving averages, outside of which you are a 34 period and the other a 55 period MA. You may notice that these numbers are part of the Fibonacci sequence.
In this Strategy, the 4 Hour chart can be used as the bottom chart (that is where people screen for likely positions on the chart where trading signals can occur) and the 1 Hour timeframe whilst the signal graph, or the trade graph (where we execute orders based to this strategy).
In the event you decide to use a different interval as the bottom graph understand that you go one-time frame lesser to the signal chart (therefore if 1 Hour is the base graph then the 30 min time frame could be the signal chart).
For the uptrend, the Tendency should meet the following Requirements:
Price Activity is above the two moving averages.
Price stays above the Moving-averages.
The 34 MA is above the 55 MA and stays above the 55 MA.
The MAs are Gearing up for most of the time as they follow the Tendency.
To Get a downtrend, the Exact Same applies Only in the opposite Way:
Price action is below the two Moving-averages.
Price Remains below the moving averages.
The 3-4 MA is below the 55 MA and stays Underneath the 55 MA.
The MAs are sloping downwards for the Majority of the Period as they trail Contrary to the trend.
It’s around and inside of this moving average zone that the best trading opportunities for this particular fad trading strategy are to be found.
As could be seen from this EUR/AUD chart, the price has a tendency to bounce off the 2 moving averages.
We’re trying to profit from the swings at the direction of the tendency. Thus, for this reason, we would like to join the trend onto the retracements.
Entry rules here :
We need to wait for a retracement to start and for the price to move towards the two moving averages.
About the 1 Hour chart, wait for a break out with a detailed of the retracement trend-line in the direction of the greater tendency (on the 4 Hour interval ).
There needs to become a fad on the 4 Hour with the moving averages lined up as described earlier in the day.
Once the retracement reaches the region around and between the moving averages we switch into the 1 Hour time to start looking for admissions.
There has to be a retracement trend-line (counter the leadership of the fad ) that has been touched at least 3 times (as shown in the example below). This will most likely become a continuation graph pattern at the same time (on the 4 Hour graph ) like a triangle or even a station.
Input on the breakout once price closes past the trend line (on 1 Hour chart).
Discontinue loss rules are clarified below.
For this specific scenario, we’d set the stop at 30% of the daily average true range beneath the entry point. On this day, the ATR was 72 pips to the AUD/USD set, therefore 30 per cent of 72 is 21.6 so we would set the initial stop with this trade at 2-2 pips + the disperse.
stop loss placement rules:
Set the ATR (average true range) index on the D1 chart.
Establish the stop loss to 30 per cent of the everyday ATR on your entry level (which is the break of the trend line ).
Insert the spread to the prevent loss (for a few more exotic currency pairs the spread can usually be 15 or even more volatility that may make a big difference in the 1-hour time frame concerning if your stop loss will probably be triggered).
Example: Simply take the EUR/USD pair that has approximately 100 pips usual daily range. In the event that you entered commerce on this 4 Hour Chart Trend Following Strategy on EUR/USD, then your stop loss could be 30 per cent of 100 that equals 30 pips in addition to the spread, which is usually approximately 1 – 2 pips for EUR/USD. So, in total the stop loss, in this instance, will be 32 pips.
profit rules :
There are some special principles with this tracking stop arrangement:
Because that really is a 4 Hour Chart Trend Following Strategy we will make work with of a trailing stop for exiting the transaction. This permits us to profit to a larger part of the relocation.
On Uptrend Direction :
Find the non of the particular candle.
Since the price makes new higher highs, find the latest maximum top quality.
Take the candle of this greatest high.
Place the prevent several pips lower compared to the reduced of the fifth candle.
Note lows count. Lows that would be the exact same as or higher than the prior temptations are to be omitted.
Count backwards for 5 past highs from the non of that candle.
On Downtrend Direction :
Take the candle of the lowest. Note highs that are higher count.
Highs that are the exact same as or lower than the prior highs are to be omitted.
As the purchase price makes new lower lows, find the latest lowest low.
Discover the high of this candle.
Count backward for 5 previous highs against the top of the candle.
Put the prevent a couple pips higher compared to the high of the fifth candle.
The blue arrows will be the starting point of the count and the line may be the stop loss placement for that time in time. The amounts are an example of just how to rely on the candles to ascertain the stop. You can see here how low highs are left out until the next higher high backwards is located.
As the downtrend progresses with each new lower low, the counting to get the tracking stop should re-done back and also the stop moved lower.
Here’s how this trailing stop looks on a graph.
EUR/USD 1 Hour chart.
Notice how the manual tracking stop enabled the dealer to capture nearly the full movement with this chart. Trades are exited only if the price goes above the blue line which happened once on this graph in the very first case on the left side.
Eventually, proceed and exercise this 4 Hour Chart Trend Following Strategy on the demo account so you can fully grasp everything before going live. If you find it helpful some backtesting on beyond price data is actually a good way to learn and master this trend-following strategy too.