Rule of 4 weeks trading, The 4 Week Rule Trading System
- Four-Week Rule Boosts Winning Trades
- By Michael Carr Updated Jun 25, Trading systems are usually thought of as complex computer programs requiring massive amounts of data to calculate the best entry and exit parameters.
Although it is likely that some of these have validity and can help traders, many of them cannot prove their efficacy or viability in the long term. This article will look into a relatively well know and often mentioned strategy called the Four Week Rule.
What is the Four Week Rule? Indicators are generally used as part of a trading system unlike the Four Week Rule which is a trading system in its self. The roots of this system date back to the Weekly Rule - which was tested and proven to achieve positive results when trading commodities. The four-week rule can be applied to FX because it essentially stipulates that an entry point can be observed at the four-week high and an exit point at the four week low.
Variables Its simplicity is enticing to many new traders - but at the same time its main issue is its simplicity. Each market is different and although there are many systems based on "rules" markets are not just affected by sentiment. Geopolitical events, policy changes, natural disasters even social media posts by influential people or companies' executives can cause market volatility as we saw recently with Tesla stock and Elon Musk's outspoken series of tweets.
Technical Analysis and Market Cycles Technical analysis is one of the sharpest tools in any traders tool box to identify sentiment and the beginning of trends. Although fundamental analysis can help protect against unforeseen reversals usually a result of unforeseen policy or geopolitical events fundamental analysis' reach is relatively short.
This is why many traders point towards the four week rule of 4 weeks trading as a solid form of technical analysis. If the bitcoin market recent four week signal was a high, that likely indicates towards a possible beginning of a downtrend or a current downtrend in action.
Inversely if there most proximate signal was a four week rule of 4 weeks trading, then there is a possibility that the instrument being analyzed is in the midst of an uptrend or a uptrend is beginning. Don't put all your eggs in one basket, is a how to make money only deposit solid piece of advice especially for traders - diversification in fact is considered a pretty concrete risk management strategy.
The 4 week rule is used primarily for futures trading but might also work in your stock trading system. This system is simplicity at its best: - Cover short positions and buy long whenever the price exceeds highs of the four preceding full calendar weeks.
Deriving all your signals from one methodology can have given you tunnel vision - i. For example, If the four-week signal is showing an uptrend and the instrument's prices have dipped below the moving average indicator, then it can be used as a confirmation - to a certain extent.
Incorrect recognition or interpretation of trends can have a devastating effect on traders. Like a slow moving trading, the equity can be easily depleted without knowing what happened until the last dollar disappears from your trading capital.
On the other hand if there is an incongruity between these two indicators, then you might need to look a big deeper - or widen your scope to truly identify what the market is going to do. The wide range of tools available to traders today is immense and not all tools are created equal.
The one fundamental and unchanging value when on the markets is every trader needs a risk management strategy. Choosing a broker that not only strives to offer you a great trading experience, but also protects you with negative balance protection and guaranteeing your stop loss level is also important.
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