Trading forex on the 4-hour charts can be a good for a number of reasons. You can filter out some of the noise from the lower chart timeframes and it takes less time to study the charts. There are many different 4-hour forex strategies that you can use, but due to the longer-term nature of these charts, I like to swing trade using a trend trading strategy. You will find that you can catch some big moves if you know what to look for which is what I will be covering in this 4-hour forex strategy.
4-hour forex trend strategy
We will be using a 4-hour forex trend trading strategy where we look to time our entry into a currency pair that has gathered momentum and is moving in an obvious direction. Once we have determined the currency trend using a moving average and the MACD indicator, we will time the entry when there is a pullback and price action analysis signals such as candlestick patterns along with support or resistance for a continuation of the trend.
Another good thing about using the 4-hour charts is that there are usually strong and obvious areas of support and resistance as they contain more price data when compared to 5-minute and 15-minute forex strategies. These price levels can also give us somewhere to place our stop loss and take profit levels whilst the technical indicators we use can also be useful for dynamic money management that adapts to the current market conditions.
Buy signal
- Price is above the 14-period moving average
- The MACD histogram is above the zero line
- The MACD main line is above the signal line
- The MACD is showing divergence to the upside
- Price bouncing from support and/or breaching resistance
- Bullish candlestick patterns
You can see from the USD/JPY 4-hour chart below that the price is above the default 14-period moving average suggesting an uptrend. The MACD (12,26,9) is above the zero line and signal line, whilst there is also some MACD divergence to the upside. Price has broken through resistance which has been tested a few times. We also have a bullish engulfing bar confirming the buy signal. We could have placed the stop loss just below the 14 SMA which would have been just 30 pips, this is very good for the 4-hour charts. Price went up over 650 pips at its peak which shows this is a strong entry signal. We could have used a trailing stop loss just below the 14 SMA which would have enabled us to earn around 450 pips when the big red candle took the trade out towards the end.
Sell signal
- Price is below the 14-period moving average
- The MACD histogram is below the zero line
- The MACD main line is below the signal line
- The MACD is showing divergence to the downside
- Price bouncing from resistance and/or breaching support
- Bearish candlestick patterns
On the USD/JPY 4-hour chart below, you will see all of the conditions have been met. Price is below the 14 SMA, the MACD crossover has happened with the histogram below zero and the main line below the signal line. We have also seen price breach recent support levels which signals strong downwards momentum. The entry is confirmed with a bearish engulfing pattern and three black crows formation. Stop loss could again have been on the other side of the moving average, which would have been around 60 pips in this instance. When you consider that the currency pair fell around 560 pips in total, this trade could have made up to 500 pips in a couple of days. We could have also used the 14 SMA as a trailing stop which would have taken us out of the trade at a very respectable 400 pips.
4-hour forex strategy Pros & Cons
Pros
- Catch some big moves
- Less time needed to watch charts
- Filters out noise from lower timeframes
- Can use any combination of indicators
- Can use any currency pair
Cons
- Less buy and sell signals
- Requires a larger stop loss
- Need to time entry and exit
Conclusion: is the 4-hour forex strategy any good?
Yes, if you are restricted on time and don’t want to spend all day watching the charts, a 4-hour forex strategy can provide you with some good buy and sell opportunities. However, it does require you to time the entry and exit, whilst you will need sensible forex money management and trading discipline. These factors can be the difference between good and bad results, even when using the exact same 4-hour forex strategy.
I would be looking to cut losing trades short and let my winning trades run. I may even both stop loss to break even and trail the remainder of the position to try and make the most of each move. It can be very frustrating when you see one bad trade cancel out a run of winners.
If you want to get started trading forex on the 4-hour charts, a demo account can be an ideal way to practice your forex strategies and build your confidence before making any commitment. Once you start to see some results over the long term, you can always make the switch over to a real account. You can get a free demo account from most forex brokers, including IC Markets who have tight spreads and lots of liquidity for quick execution speeds at the best available prices.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
