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, we’ll 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. We’re going to reveal the Doji sandwich pattern in the next sections, so continue reading.
Without further ado, let’s first layout the foundation of what is H4 in forex and then move on to show you our H4 forex trading strategy.
What is H4 in Forex?
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, it’s readily accessible.
The 4h time frame carries a distinctive role, especially in the forex market.
Unlike stocks which 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 point out to a half of each major trading sessions.
In the forex market, the Sydney, Tokyo, London and New York session have their unique price action. And, this is where FX traders can focus on new trading opportunities.
We’ll explain the main benefits of using the 4h trading system.
Why the 4 Hour Time Frame is Important
Trading on the 4h time frame is not only suited for those with limited time on their hands or the beginner traders. Check out our guide on the best trading strategy for beginners.
There are other benefits of trading 4h time frames that can’t be found on other time frames, including:
- You’re 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.
One of the biggest mistakes traders makes trading the 4-hour chart is that they don’t 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, we’ll 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 you’re serious about trading, you need to use forex charts with the New York close.
Let me explain…
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.
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 you’re using the 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 you’re using the 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 it can make the difference between winning and losing.
Traders can use these 4-h candles to find potential new trading opportunities.
You’ll 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.
We’re going to reveal our best H4 forex strategy.
Best H4 Forex 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 we’ve found work best on the 4-hour time frame.
A detailed guide to the Doji Candlestick pattern can be found here: Best Doji Trading Strategy - 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 it’s extremely high. We’re going to demonstrate how the Doji Sandwich setup paints the change in market sentiment.
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, we’re 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 explain…
The Doji Sandwich is very easy to identify as it’s a 3-bar reversal pattern comprise of:
- One large candle that 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 “sandwich” 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:
“If something doesn’t work, it disappears very quickly.”
But, that’s not the case with the Doji Sandwich setup as it has stood the test of time.
We’ll 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, in order to harvest the bad forex signals from the good forex signals, we’re going to use some extra technical tools.
Filter Your Trading Setups with Stochastic Indicator
The overbought and oversold conditions are based upon the stochastic indicator.
See the best practices on how to use the stochastic indicator here: Best Stochastic Trading Strategy- 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, we’re very close to see 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.
Spotting a chart pattern is only half of the equation; we also need an entry technique for our H4 trading strategy.
The Entry Technique
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 thing…
Once you’re in a trade, you still need to have a plan to manage your trades and not leave it to luck.
For trade management, we’re going to throw in some additional technical indicators.
How to Manage Your Trade?
This is important so don’t 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.
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 well under the 200 MA, we’re going to treat this trade as a short to medium-term trade. However, if the pattern develops above the 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 we’re going to treat this trade as a short-term trading opportunity.
Now, you might be wondering:
“How to use the 50-period moving average?”
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:
We’re going to answer how to protect your bottom line and exit with a nice profit.
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 than can be trailed below the 50 MA to further reduce the risk.
See the forex chart below:
We have several options to take our profits:
- First, if we’re below the 200-MA, we get out once the stochastic indicator is in overbought territory.
- If we’re above the 200-MA, we need to be more creative as to capture a larger portion of the trend and combine the action of both MAs.
See the forex chart below:
Moving on, we’re going to outline a variation of the Doji Sandwich which has an even higher success rate
Best 4H Forex Strategy – Advanced Setup
If you like this 4h price pattern, we’re sure you’ll also like if we share with you a second alteration of the 4h Doji Sandwich.
Everything remains the same, only two things change.
Let me explain…
For example, if you’re 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.
· Final Words – H4 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 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 you’ve 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 is 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!
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Trader Tim Black shows us the Doji Sandwich Strategy in the video below!