What is the 4 hours Forex Strategy?
The 4-hour Forex Strategy is a trading technique in which the four-hour candlestick chart time frame is used to make trading decisions.
This Strategy is like any other, only that the chart is on the 4-hour time frame. The strategy can either be used on Moving Averages or Price Action while following a trend.
Why use the 4 hour Trading Strategy Forex?
Higher time frames like the 4 hour or daily chart time frames are known to have very little market noise-making technical analysis easier than in lower time frames.
Lower time frames react to every trigger immediately leading to very frequent price changes and may, therefore, be very difficult to analyze.
Each of the different Forex Markets is open for about 8 to 9 hours. This means a whole session will only have two candlesticks.
Analyzing the first candlesticks can give you an idea of what is to happen in the next session. That way you can position yourself to gain from the price moves and occurrences of the next session and so on.
Trading the 4 hour Forex Strategy also saves you the time of having to stay glued to the screen.
For busy traders, it is such a convenience because you do not have to be there always. You can actually use the strategy to swing trade – only a few minutes of analysis, placing the trade and leaving it running.
Trading the 4 hours Forex Strategy in Olymp Trade.
How can you make money trading the 4 hours Forex Strategy on Olymp Trade? That is the burden of this particular article and we are just about to establish that.
Set Up your Chart for the 4 hours Forex Strategy as follows;
- Set your candlestick chart time frame to 4 hours.
- Apply the 50 period and 200-period Exponential Moving Averages (EMA 50 and EMA 200).
Your Chart is ready for the Strategy!
After Chart Set Up, trade the 4 hours Forex Strategy in the following Simple Steps.
- Establish the primary trend.
- Confirm the trend using Exponential Moving Averages (EMA 50 and EMA 200).
- Handle the Retracement.
- Enter a Buy or a Sell Position.
- Adjust your Stop Loss.
- Adjust your Take Profit.
1. Establishing the Primary Trend for the 4 Hour Trading Strategy Forex.
It is very easy to look at the 4 hour candlesticks and establish the primary trend.
Here is where price action comes in.
If the price keeps moving up forming higher highs and lows, then such is an uptrend. Conversely, if the price keeps going down forming lower highs and lows, then such becomes a downtrend. Several pullbacks or retracements may occur on the primary trend, but the overall trend direction still prevails.
Having established the primary trend takes us to the next step.
2. Confirming the trend using Exponential Moving Averages (EMA 50 and EMA 200).
We applied EMA 50 and EMA 200 to our chart. What are their purposes? They are for confirming the directional bias we established on the first step.
Price action posting higher highs and lows was an uptrend thus establishing an upward bias. An upward bias will be confirmed as follows;
- EMA 50 having crossed over EMA 200 from below upwards or EMA 50 being already above and diverging upwards away from EMA 200.
- Price trending above EMA 50.
- Downward retracements that do not go below EMA 50 or at most EMA 200.
Price action posting lower highs and lows was a downtrend thus establishing a downward bias. A downward bias will be confirmed as follows;
- EMA 50 having crossed over EMA 200 from above downwards or EMA 50 being already below and diverging downwards away from EMA 200.
- Price trending below EMA 50.
- Upward retracements that do not go above EMA 50 and at most EMA 200.
3. Handling the Retracement on the Four Hour Trading Strategy Forex Trades.
In an uptrend, we have said that retracements can occur as long as they do not go below EMA 50 and EMA 200 downwards. We have also said that retracements can occur in a downtrend provided they do not go above EMA 50 and EMA 200.
These retracements we are talking about here, are of such a great significance in determining our entry points, stop loss levels, and profit targets. We, therefore, must understand how to handle them.
How to handle retracements.
This is how to handle downward retracements that do not go below EMA 50 and EMA 200 on an uptrend.
Use a horizontal line to mark the previous high before the retracement. You then need to wait until the retracement occurs and price rises again breaking the marked high upwards.
Alternatively, you can use a horizontal line to mark the previous low before the retracement on an uptrend. You then need to wait until the retracement occurs and the price falls again breaking the market low downwards before making a move.
4. Entering a Buy or a Sell Position with the Four Hour Trading Strategy Forex Trades.
You will enter a Buy position only after all of the following conditions are met;
- A confirmed uptrend.
- Price breaking the marked high upwards after a downward retracement which did not go below EMA 50 and EMA 200.
Conversely, you will enter a Sell Position only after all of the following conditions are met;
- A confirmed downtrend.
- Price breaking the marked low downwards after an upward retracement which did not go above EMA 50 and EMA 200.
5. Adjust your Stop Loss if you are trading on the Olymp Trade Forex Platform.
For your Buy position, your Stop Loss Order should ideally be at the closest prominent low.
For your Sell position, your Stop Loss should ideally be at the closest prominent high. This gives the price enough time to move.
6. Adjusting your Take Profit.
A reasonable risk-to-reward ratio is paramount. In addition, measure the height of the whole retracement. You can then place your take profit at about 1½ times the distance you get, from your entry point.
The price is bound to move at least one and a half times the height of its prior retracement.
Wrapping Up on the 4 hours Forex Strategy.
Such easy to apply a trading strategy on the 4 hour candlestick chart.
However, note that the setup and conditions perfect for this strategy do not occur every now and then. It is therefore not a strategy for quick-fix trades but one that requires patience.
Apply the 4 hours Forex Strategy to trade Forex on Olymp Trade and continue making money.