H4 Forex Trading Strategy Using the Doji Sandwich
Learn the H4 forex trading strategy a cash-rich system to benefit from both the intraday price fluctuations and the larger time frames. Throughout this guide, weโll outline a detailed plan around the best H4 forex strategy and what are the best trading tactics to implement on the 4-hour chart.
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What time frame you trade on will largely determine how you calculate your support and resistance levels, your risk level, and determine the trend direction. Our goal is to focus on the 4-hour time frame, namely because:
- It allows you to actively trade the markets around the clock
- It combines the benefit of the intraday charts along with the big-picture trends
Probably, the 4-hour chart is the best time frame for simple swing trading.
If you have a 9 to 5 job or a family that keeps you busy, but you still want to make money from the forex market, we recommend trying the H4 trading strategy. Weโre going to reveal the Doji sandwich pattern in the next sections, so continue reading.
Without further ado, letโs first lay out the foundation of what is H4 in forex and then move on to show you our H4 forex trading strategy.
Table of Contents
What is the H4 Forex Trading Strategy?
Now, probably most of you already know that in the forex trading and technical analysis realm, H4 is simply an abbreviation for the 4-hour daily time frame.
The 4-hour time frame is an intraday TF where each corresponding candle encompasses exactly 4 hours of trading activity from open to close. The 4h chart also comes as the standard default time frame with most top trading platforms so, itโs readily accessible.
The 4h time frame carries a distinctive role, especially in the forex market.
Unlike stocks, that are opened for trading for a limited 8-hour window, in forex trading, the foreign exchange market never sleeps.
So, in the stock market, the 4h TF is useless as one full day of trading will be comprised of two 4h candles. However, in the forex market, one full day of trading activity is comprised of six 4h candles. What is even more important, one 4h candle points out to half of each major trading session.
In the forex market, the Sydney, Tokyo, London, and New York sessions have their unique price action. And, this is where FX traders can focus on new trading opportunities.
Moving onโฆ
Weโll explain the main benefits of using the 4h trading system.
See below:
Why the 4-Hour Time Frame is Important in the H4 Forex Trading Strategy
Trading on the 4h time frame is not only suited for those with limited time on their hands or beginner traders. Check out our guide on the best trading strategy for beginners.
There are other benefits of trading 4h time frames that canโt be found on other time frames, including:
- Youโre no longer a slave to the markets and have more freedom.
- The impact of risk events on the 4h chart is less visible.
- Timing the market is not that critical, giving you more wiggle room for error.
- Larger profit potential.
- And, of course, benefiting from combining the benefits of intraday TF with larger time frames.
Nowโฆ
One of the biggest mistakes traders makes trading the 4-hour chart is that they donโt pay attention to the fact that different brokers have different closing times for the 4-hour candle breakout strategy.
This is a time-critical forex trading consideration.
And, that can make the difference between winning and losing.
Below, weโll explain this in more detail.
How to Use the 4-Hour Chart to Confirm Your Trades
Since time in the forex market is broken in several trading sessions and forex brokers run on different time zones, the 4h candle will close at a different time of the day. Nowadays, most forex brokers run on the GMT+3 time zones but, if you want to be safe, better check with your broker.
The main disadvantage of the different FX broker server times is that you will get different 4h candle closing. Every new candle on the 4h time frame is formed every 4 hours. This in turn will lead to different price actions on your 4h chart.
See below the difference between a 4h chart with a New York close and a chart with a different closing time.
To resolve this issue, and have a more accurate representation of each trading session we use the New York close time to define when a new 4h candle is printed.
In forex trading, the New York close is considered the standard closing time for the day. Learn how to master forex trading with our complete guide.
If youโre serious about trading, you need to use Forex charts with the New York close.
Let me explainโฆ
The daily closing price in any market, be it forex, stocks, commodities, or cryptocurrencies displays who won the battle between buyers and sellers for that session.
Traders who are planning to use the h4 forex trading strategy need to have the correct New York closing charts.
If you want the identical price action on your charts as we have them, you should use the New York close charts.
Nowโฆ
If you use the correct New York close charts, you should see each 4-hour candle close at 5:00 PM, 9:00 PM, 1:00 AM, 5:00 AM, 9:00 AM, and 1:00 PM.
If youโre using Central Time, you should see each 4-hour candle close at 4:00 PM, 8:00 PM, 12:00 AM, 4:00 AM, 8:00 AM, and 12:00 PM.
On the other hand, if youโre using Pacific Time, you should see each 4-hour candle close at 2:00 PM, 6:00 PM, 10:00 PM, 2:00 AM, 6:00 AM, and 10:00 AM.
Taking care of this type of detail while it might seem unimportant can make the difference between winning and losing.
Traders can use these 4-h candles to find potential new trading opportunities.
Youโll only need a 10-minute window of time upon the close of each of the 4h candles to analyze your favorite currency pair and spot new opportunities to make money.
Moving onโฆ
Weโre going to reveal our best H4 forex strategy.
Best H4 Forex Trading Strategy
The H4 trading strategy revolves around a very common chart pattern known to the technicians as the Doji candlestick. Our Forex H4 trading system combines some high-probability setups that weโve found work best in the 4-hour time frame.
A detailed guide to the Doji Candlestick pattern can be found here: Best Doji Trading Strategy โ The Lucky Star for Profitability.
As far as the probabilities of the trade working using this special Doji setup and the magnitude of the trade working itโs extremely high. Weโre going to demonstrate how the Doji Sandwich setup paints the change in market sentiment.
Nowโฆ
The Doji chart pattern can take many different shapes and forms.
The figure below shows the standard Doji setups.
The main characteristic of the Doji is the small body where the open and the close are very close together.
However, the hanging man, shooting star, bullish and bearish Harami, inverted hammer, and dark cloud are considered to be variations of the standard Doji pattern. So, weโre going to also use the above-mentioned chart patterns to spot buying and selling opportunities.
The Doji candle pattern is only one part of the overall Doji Sandwich trade setup.
Let me explainโฆ
The Doji Sandwich is very easy to identify as itโs a 3-bar reversal pattern comprised of:
- One large candle closes near the higher end (or lower end) of its price range.
- Followed by the Doji candle.
- Another large candle is of the same magnitude as the first candle.
See the Forex chart below:
Note* The last candle must be in the same direction (bullish or bearish) as the first candle.
The term โsandwichโ comes from the fact that the Doji candle appears sandwiched between two larger candles. And, this is what makes the H4 forex trading strategy very effective. This will produce a high probability reversal setup.
When you combine the Doji candle with the nearby candles we have a recipe for success.
This simple trade setup on the 4h chart, will almost double your success rate.
On Wall Street, there is a saying:
โIf something doesnโt work, it disappears very quickly.โ
But, thatโs not the case with the Doji Sandwich setup as it has stood the test of time.
Weโll demonstrate the profitability of the setup using live trade examples.
Now, here is the thing:
The truth about trading is that no matter what trading setup you use, there will always be false signals.
So, to harvest the bad forex signals from the good forex signals, weโre going to use some extra technical tools.
See below:
Filter Your Trading Setups with Stochastic Indicator
The overbought and oversold conditions are based on the stochastic indicator.
See the best practices on how to use the stochastic indicator here: Best Stochastic Trading Strategyโ Easy 6-Step Strategy.
Note* We use the default settings for the stochastic indicator.
As a general rule, if you can spot a reversal signal when your stochastic indicator is in an overbought/oversold area, weโre very close to seeing a trend reversal.
Here is an example:
The USD/CAD pair prints the Doji Sandwich pattern on the 4h chart and right at oversold conditions.
See the chart:
The Doji Sandwich pattern meets all of our requirements:
- The first candle and the third candle are more or less of the same length and point in the same direction (bullish flag chart pattern).
- Second, the middle candle is a Doji candle.
Moving onโฆ
Spotting a chart pattern is only half of the equation; we also need an entry technique for our H4 trading strategy.
See below:
The Entry Technique in the H4 Forex Trading Strategy
There are two ways to enter this trade:
- You can buy (sell) as soon as the 4th candle opens.
- Wait until the high (low) of the third candle is broken.
We have used both types of entry techniques to take advantage of high-probability trades.
Here is the thingโฆ
Once youโre in a trade, you still need to have a plan to manage your trades and not leave it to luck.
For trade management, weโre going to throw in some additional technical indicators.
See below:
How to Manage Your Trade?
This is important so donโt bypass this trading gem.
The following moving averages are used by the H4 trading strategy:
- The 200 moving average.
- The 50-period simple moving average SMA.
Every major money manager in the world uses those moving averages to make informed decisions about their portfolios.
Nowโฆ
Here is how we use the 200 moving average:
The 200 MA is only used for long-term guidance and to decide how long are we going to stay in the trade.
For example, if we have a bullish Doji sandwich pattern but are well under the 200 MA, weโre going to treat this trade as a short to medium-term trade. However, if the pattern develops above 200 MA, we want to stay with the trend and ride that wave to squeeze as much profit as possible.
The chart above shows the Doji Sandwich pattern being printed well below the 200 MA in which case weโre going to treat this trade as a short-term trading opportunity.
Now, you might be wondering:
โHow to use the 50-period moving average?โ
The 50 MA is there for guidance purposes only. What we look after is for the price to break above the 50 MA either within the first candles after we entered the market or during the development of the Doji Sandwich pattern.
See the Forex chart below:
Nextโฆ
Weโre going to answer how to protect your bottom line and exit with a nice profit.
See below:
Stop Loss and Exit Strategy
First, the protective stop-loss trading strategy is placed below the Doji candle, which is the middle candle of the 3-bar pattern used. More, once we break and close above the 50 moving average, the stop loss can be trailed below the 50 MA to further reduce the risk.
See the Forex chart below:
Nextโฆ
We have several options to take our profits:
- First, if weโre below the 200-MA, we get out once the stochastic indicator is in overbought territory.
- If weโre above the 200-MA, we need to be more creative to capture a larger portion of the trend and combine the action of both MAโs.
See the Forex chart below:
Moving on, weโre going to outline a variety of the Doji Sandwich which has an even higher success rate
See below:
Best 4H Forex Strategy โ Advanced Setup
If you like this 4h price pattern, weโre sure youโll also like it if we share with you a second alteration of the 4h Doji Sandwich.
Everything remains the same, only two things change.
Let me explainโฆ
For example, if youโre looking for a bullish reversal the first candle is a bearish candle, while the last candle of the 3-bar formation is a bullish candle, like in the figure below.
Note* In the case of a bearish reversal the first candle is bullish while the last candle is bearish.
Here is one more hint:
If the third candle closes above the high of the first candle then this is setting the stage for a very high probability trade.
Try it for yourself and look on your charts for the Doji sandwich pattern.
Doji Sandwich H4 Chart Strategy Video
Trader Tim Black shows us the Doji Sandwich Strategy in the video below!
Final Words โ H4 Forex Trading Strategy
In summary, the H4 forex trading strategy is ideal for looking for trading opportunities around the clock. Keep in mind that the H4 Forex trading strategy requires a solid understanding of how the market operates. The trading rules outlined throughout this guide should be enough to help you navigate all types of trading environments.
So, here is a summary of what youโve learned:
- The H4 time frame lets you benefit from both worlds (intraday PA and larger TF).
- The H4 chart carries more weight in FX trading due to how each day is broken in trading sessions.
- The Doji Sandwich is a 3-bar reversal pattern.
- You have learned an intuitive entry technique along with trade management tactics.
- The best H4 forex strategy will increase the odds of your success even further.
Thank you for reading!
Feel free to leave any comments below, we do read them all and will respond.
Greet.Thank you
Recently I have discoverd 3 candle pattern . And thanks for your topic, I found it more details about entry technique.
Very good !
This is the best site I have come across with simplicity of teaching strategy. Thank you.
Powerful strategy
Itโs exhausting to find knowledgeable individuals on this subject, but you sound like you understand what youโre speaking about! Thanks