The Four-Hour Trader, A Full Trading Plan
by James Stanley , Currency Strategist
Price action and Macro.
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Four Hour Trader Talking Points:
- Traders can implement a well-heeled plan taking only four hours per week
- The four-hour chart can be ideal for Forex Traders looking to trade around the clock
- We outline a full plan based around Price Action that traders can begin using today
All of the sudden, the world has gotten very small; and life is moving faster than ever before.
The internet presents a lot of benefits to the human species; but time management is not one of them. As competition for page views, viewer numbers, and attendance continues to heat up, very little in this life emphasis a slow and steady approach.
But to the trader, in many cases, that is the best way to go about speculation in markets: Slow, steady, and consistent .
But being there as a trader, and getting there as a new speculator are completely different markets. In this article, we’re going to outline a complete trading plan that will take less than four hours of a trader’s time each week. And further, this is an approach that can be focused on longer-term moves , and swings .
If you have a day job, or any other pre-existing commitments that limits your time on charts, this is an approach that can offer quite a few benefits.
The Center of the Approach
The 4-hour chart plays a special role in the FX market.
Most equity markets are open between 8 and 9 hours each day, and as such, the four-hour chart might take on less importance. After all, a four-hour chart just shows two bars for each trading session, so traders might as well just look at the daily chart.
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.
In the FX Market, traders are truly ‘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. Using the New York close to define ‘financial time’ means that we’re seeing candles close at 5, 9, and 1 AM and PM (based on ET). If you’re using Central Time, that’s 4, 8, and 12 AM/PM while Pacific Time is 2, 6, and 10 AM/PM.
If you’re busy at the time, Mobile Applications can generally offer you what you need to perform the analysis at the close of each of these candles.
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 10-15 minutes can be used at or around the daily close.
The total time commitment required is 40-50 minutes each day, for a total of 200-250 minutes per week (240 minutes is 4 hours).
Use Price Action to locate the strongest trends
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).
Price Action can help traders locate the strongest trends
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. But, is it enough to just buy up-trends or sell down-trends and ‘hope’ that they continue? No. Traders can use price action to appropriate their entries into these positions.
Use Price Action to buy up-trends cheaply, and sell down-trends expensively
Once a strong trend has been located, the trader can then look to plot their entry by looking for a ‘trigger’ into the position via price action.
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 to buy up-trends after a recent swing low
Traders can look for additional confirmation of the entry by looking to the price action candles that form at or around those swings.
We looked at quite a few of these triggers in Trading Bearish Reversals (for down-trends) , and The Hammer Trigger for Bullish Reversals (for up-trends).
Traders can look for bullish triggers at or around recently printed new lows
Use Stops and Limits to Enforce Favorable Risk-Reward Ratios
We talk about this a lot at DailyFX, and there is a reason for it: It’s important!
One of the main premises of our price action education is that future prices are unpredictable, and as such, there is no such thing as a ‘holy grail’ or ‘can’t lose’ strategy.
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. We looked at this premise in Trading Trends by Trailing Stops with Price Swings.
Traders can lock up gains to maximize trends
Created by James Stanley
-- Written by James Stanley
James is available on Twitter @JStanleyFX
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.
4 hour forex strategy
Still have a question? Ask your own!
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This is a simple yet very powerful trading strategy my firm had been using for years. Though it is 1 hour chart, same pattern can be found on 4 hour chart also. When is price is about to touch the upper trend line it is a good time to go for sell and vice versa. However I would suggest you to keep the stop loss line very close to the trend line (approx 10–20 Pips).
It’s better to use this strategy in most liquid markets like EURUSD , USDJPY etc. Because in non liquid market, the fluctuations will break your stop loss apart.
(Hope this strategy was useful to you, If you want to see the daily trading strategy , check out the Trading Strategy section in this link . Also follow us on Twitter to keep updated about new strategies. Please provide any suggests and feedback if you have. )
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Best trading hours depends on your trading style and your personality. To me London session is the best session for beginner traders
4 Hour MACD Forex Strategy
4 Hour MACD Forex Strategy
4 Hour MACD Forex Strategy – Welcome to the 4 Hour MACD Forex Strategy. This strategy is aimed at simplicity as well as high probability trades. I have been in the equity market for almost ten years now and in the forex market for two years. I learned very early that forex trading is not for the shaky ones. One must have a tested and definite trading strategy as well as well organized discipline to follow the strategy and execute the plan as to the letter. One must be exact and precise.
Therefore I paper traded for almost two years and read everything I could lay my hands on. I bought books and courses. I attend a 5 day live web seminar. All this did not help me at all as it did not fit my style of personality and I just did not seem to connect with all this different strategies. Over two years of watching the graphs with different indicators, moving averages etc. I started to get a feeling for the movement and motion of the market especially the EurUsd around certain moving averages.
It wasn’t till late last year that I discover a setting with the MACD that gives easy to read signals on a regular basis on a 4 hour timeframe. I like the 4 hour timeframe as one are not glued to the screen full time. If you look at FIG 1 below you will see that there were 14 signals over a period of 5 weeks. Within that period of FIG 1 the signals given were pretty good. There are times when some signals does not produce positive results. I then had to work on a filter system to only let me take the best ones. I found that the MACD when moving in a certain way produces a 95% accuracy. I will show you later how the high probability trades look like.
In FIG 1 the signals are shown and FIG 2 shows that an entry is made after the 4 hour bar has closed and at the opening of the next bar.In FIG 3 another 19 deals were shown of which the last one was not finished yet so out of a total of 18 trades 5 were wrong and 13 were right.As it is a 4 hour strategy it means sometimes setting the alarm clock to catch an entry in the early morning hours. What makes it nice is that one will know after the close of a 4 hour bar whether the next 4 hour bar might close as a signal by just following the MACD. Therefore one can set an alarm at that time. Have a look at FIG 1 to 3.
This was just to see and get a feeling for the graphs. Let us start to set-up our charts.
First of all are the moving Averages that we are going to use.
1. 365 Exponential Moving Average (365EMA)
2. 200 Simple Moving Average (200SMA)
3. 89 Simple Moving Average (89SMA)
4. 21 Exponential Moving Average (21EMA)
5. 8 Exponential Moving Average (8EMA)
MACD settings at
1. Fast EMA 5
2. Slow EMA 13
3. MACD EMA 1
Three sets of horizontal lines above and below zero should be drawn on the MACD
window at levels as well as one on zero
1. Level +0.0015
2. Level +0.0030
3. Level +0.0045
4. Level –0.0015
5. Level –0.0030
6. Level –0.0045
The MACD moves in certain patterns that when recognized can be very profitable trades. Let me show you the very important ones first. By not following every signal but only the ones that gives high probability trades through certain MACD patterns serves as a filter. The ones not familiar are not taken. This is the filter.
This pattern comes very regular especially A and D as the MACD has moved beyond the 0.0045 level and are due for a correction and or trend reversal. B and C are trend continuing patterns and are entered in the direction of the trend. Red circles indicates entry signal and entry is made on the opening of the next bar.