Richard Donchian’s 4 Week Rule applied to Forex trading. The system we are going to look at is so simple, most traders simply believe it can’4week rule forex make money but it does. The system has been making money since the late seventies, when it was first used on commodity markets and its still making big profits over 30 years later!
Wait until a currency pair reaches a new 4 week high and execute a buy signal. Simply hold the position open in the market until a 4 week low is hit and then reverse the position from long to short. The 4 week rule is a simple price action trading system which is based on breakout methodology and the logic of a price action breakout trading simple is very easy to understand and also have confidence in. By focusing on trading 4 week highs and lows, the system is only interested in catching and holding long term trends. In terms of making money, its the long term trends which make the big profits and Forex trend following with the 4 Week Rule is very profitable over the long term if applied to a basket of uncorrelated currency pairs. It maybe a simple price action trading system but it will always make money and this is because you will always get big trends in any currency pair.
The system suits patient traders who just want a mechanical system which they can simply trade in their spare time. The pro traders love this mechanical trading system, the novice or new trader, thinks it’s just to simple to work but the facts show, its one of the best trading systems to help you make great profits in the market. Check the system out and think about the logic and you will see, why the system is so highly regarded by professional traders. Trend following is a well-known concept underlying many successful trading systems.
Probably the first such system was the weekly rule devised by Richard Donchian. Donchian was called the “father of modern commodities trading methods,” and was the first to manage a commodities fund that was available to the general public. He is believed to have developed the idea of trend following systems in the 1950s. The weekly rule, in its simplest form, buys when prices reach a new four-week high and sells when prices reach a new four-week low.
A new four-week high means that prices have exceeded the highest level they have reached over the past four weeks. Likewise, a four-week new low means prices are trading lower than they have at any time over the past four weeks. This system is always in the market, long or short. This strategy will consistently be on the right side of all the big moves in a market.