Profitable Trading Strategy: Mastering 4-Hour Chart Swing

15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

A simple yet profitable trading strategy and a plan are the ultimate keys to consistent long-term profitability because they allow traders to capitalize on their edge without emotions day in and day out.

Trading Strategy Guides Logo Dark Transparent

Before we begin, thanks for visiting Trading Strategy Guides (TSG)! We are so glad youโ€™ve found us. You have discovered the most extensive library of trading content on the internet. Our aim is to provide the best educational content to traders of all stages. In other words, we want to make YOU a consistent and profitable trader.

If youโ€™re a brand new trader, we recommend hopping over to our ultimate beginnerโ€™s guide to trading to learn more.

Todayโ€™s post presents you with a profitable and solidย trading swing strategyย on the 4-hour chart. So, it is vital to follow along carefully and make sure that all the steps are understood.

There is one crucial task we would like to ask you to complete in return for access to this profitable day trading strategy. We want you to tweak and test it with your own ideas. That way, we can build the best Forex strategy for consistent profits and less volatility.

Letโ€™s get started.

Statistics of Setup for This Simple yet Profitable Trading Strategy

The first thing we want to share with you is the performance details of the most profitable trading strategy. We need to make sure that you are taking this setup seriously and are appreciating the value provided in this article. Therefore, let us review the stats of the EUR/AUD backtest in the entire 2013:

  1. Trail stop Parabolic: +13.8 units of risk / +0.39 per trade.
  2. Trail stop Tenkan: +43.9 units of risk / +1.25 per trade.
  3. The average reward (half Parabolic and half via Tenkan) is +28.86 units of risk / +0.82 per trade.
  4. That means if a trader risks 1% per trade, the profit is +28.86%.
  5. 35 trades taken.
The Statistics For This Simple Yet Profitable Strategy.
9 6 2014 strategy 7

I am sure we have your attention now. We advise paying close attention because the stats get even better. The remaining stats are calculated based on scenario 3:

  1. 17 wins and 18 losses for roughly 50% โ€“ 50%.
  2. The average win was +3.2, and the average loss was -0.58.
  3. The profit factor, therefore, was 3.2 / 0.58 = 5.55 (!).
  4. There were 10 trades out of the 17 that made one reward unit or more.
  5. Only four trades out of 18 closed for a total loss.

When each unit of loss was compensated by 5.5 units of reward, and approximately 50% of the trades were won, then obviously, the strategy was going to pull into profit.

The profitable day trading strategy is uniquely able to capture long runs and big wins. Not only does the performance show stellar stability, but there are other advantages as well:

  1. Simplicity โ€“ simple rules that are not demanding to implement.
  2. The strategy can ride long on momentum.

Enough has been said about the performance details of this simple and effective trading strategy, so it is time to move on and explain the rules and ideas behind this concept.

Strategy 201

Here are the basic details connected to the strategy:

Our goal was to create a swing strategy that can be actively traded by all types of traders, from beginners to experienced ones.

As always, our only focus is on technical analysis. The discretionary element is limited to ensure that our rules are crystal clear for all traders.

Moreover, the main strength of our strategy will be to capitalize on trendingย breakouts. The simple and effective trading strategy focuses on trading with the trend but will only use a one-time frame: the 4-hour chart.

Our tools and indicators are simple:

  1. Parabolic settings 2 = green dots.
  2. Parabolic settings 5 = purple dots.
  3. Ichimoku indicator:ย Tenkan-senย / Tenkan= red line.
  4. Ichimoku indicator: Kijun-sen / Kijun = blue lineโ€™.
The Basic Details Of This Strategy.
9 6 2014 strategy 1


As a roadmap and building block for constructing any strategy, we highly recommend reading Forex Chart Patterns and How to Find Opportunity in Forex.

The Toftem Model

This model is a checklist of the five steps before and during the entry.

T = Trend
O = Opportunity
F = Filters
T = Trigger
EM = Entry Method

These steps will be reviewed here one by one for this swing strategy. The 4-hour chart is used for all of the five steps, besides the filter chart, which uses the daily time frame.

Part #1: Defining a Trend

This best Forex strategy for consistent profits uses the Tenkan and the Kijun lines for trend definition purposes. The Tenkan and Kijun lines are part of the Ichimoku indicator, but the remaining three parts of the indicator were removed (please read more here about theย Ichimoku indicator).

The most profitable trading strategy needs Tenkan and the Kijun to align to one side:

  1. When the Tenkan is above the Kijun โ€“ bullish bias.
  2. When the Tenkan is below the Kijun โ€“ bearish bias.
  3. When the Tenkan equals the Kijun -range.

This is a sweet, simple, and effective way of measuring the trend. Trading must not be complicated or high-level mathematically to be profitable.

Defining A Trend.
9 6 2014 strategy 2

Part #2: Opportunity

The opportunity is valid when the Tenkan has an angle:

  1. An upward-sloping angle means upward momentum.
  2. A downward-sloping angle means downward momentum.
  3. A flat angle means no trend/range environment and no momentum.

Moreover, the trend and opportunity must be aligned to the same side before a trader can continue with the next step. This could be either:

  1. Bullish trend and bullish opportunity, or
  2. Bearish trend and bearish opportunity.

The screenshot below shows when a currency has momentum to the upside, downside, or no side (flat). Again, the opportunity is intuitive and has an internal logic. Nothing fancy yet practical.

Identifying An Opportunity.
9 6 2014 strategy 3

Part #3: Filters

The filter uses the daily chart to check if trends and momentum face significant obstacles, such as daily tops and bottoms. If yes, and the price is too close (sufficient space towards S&R), then that pair and potential trade setup would be filtered out and ignored.

When testing the strategy, no filters were used, meaning the statistics show the โ€œgrossโ€ performance. The results can potentially be improved with filters.

Furthermore, the filter steps keep our focus on valid setups and make sure our mind is not overtrading. Filters are essential for making your trading more profitable.

Part #4: Trigger

The trigger is when the trader waits for the price to confirm its expected development, and they are one step away from entering. Moreover, the trade is not just a potential trade setup but is close to becoming an actual trade. This strategy uses the following triggers:

  1. For a bullish trend and bullish opportunity, the price needs to break through one of the two Parabolic levels to the upside (parabolic is above price).
  2. For a bearish trend and bearish opportunity, the price needs to break through one of the two Parabolic levels to the downside (parabolic is below the price).
Locating The Trigger.
9 6 2014 strategy 4

Green dots mean parabolic with a value of two, whereas purple dots mean parabolic with a value of five. The trigger means full alert for the trader as the moment of entry spirals closer.

Feel free also to learn aย momentum trading strategy.

Part #5: Entry Method

The entry method is an immediate market order after the candle closes. There is one crucial element that needs to be confirmed before an entry is taken. The close of the candle needs to be near (within 40%) the candle extreme (in the direction of the breakout), which means:

  1. A close near the high should accompany an upside breakout.
  2. A close near the low should accompany a downside breakout.

False breakouts often tend to have big-sized wicks upon a breakout. By waiting for the candle to close, the trader can avoid these false breakouts and control their trading plan.

The entry is the defining moment, but it never hurts to be critical before opening the position.

Finding An Entry Opportunity.
9 6 2014 strategy 5

Trade Management

The stop loss uses the tops and bottoms from the 4-hour chart. Moreover, the tops and bottoms are candles, which are the highest or lowest candles within a group of a minimum of five candles.

Trade Management Tactics When Using This Strategy.
9 6 2014 strategy 6

The take profit uses a trail stop loss. The main trail is an exit upon a crossover of the Tenkan and Kijun to the opposite side plus a candlestick close on the opposite side of the Tenkan line (for longs cross to the downside; for short cross to the upside).

Another trail-stop loss that could be used for discretionary purposes is the Parabolic value two. As soon as the parabolic is placed on the opposite side of the price, the trade is immediately closed. We also have training onย Japanese candlesticks and how to use them.

Where To Put A Stop Loss
Where to put a stop loss

Conclusion

That concludes the rules and explanation of Strategy 201. We hope you enjoyed the ride!

Now itโ€™s your turn! We need your input on this strategy. Please answer the following questions:

  1. What is the biggest edge of this strategy?
  2. What is its weakest point?
  3. What is its biggest improvement point?
  4. Do you like the strategy?

We hope you find that this simple yet profitable trading strategy can be a very profitable Forex strategy. Let us know down below! Last but not least, make sure that the strategy rules match your ownย trading psychologyย to increase the chances that the rules are implemented effectively.

Thank you for taking the time to read our posts and for sharing this article with your acquaintances.

Please leave a comment below if you have any questions aboutย this simple strategy!

We wish you happy trading!

Copy-Of-930-X-180-Top-Banner-Strike

How useful was this post?

Click on a star to rate it!

Average rating 5 / 5. Vote count: 2

No votes so far! Be the first to rate this post.

As you found this post useful...

Follow us on social media!

We are sorry that this post was not useful for you!

Let us improve this post!

Tell us how we can improve this post?

15 Price Action Patterns Insiders are Using If a hedge fund managers were using 15 specific price action patterns would you want to know?

14 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

  1. Well, immediate reaction is that it seems complicated. But I like the fact that itโ€™s a 4 hour strategy, meaning (to me) that I only need to check the charts a few times a day. Perhaps once I set it up and try it out it will not seem as complicated.
    Has it been tried on other pairs besides the EURAUD cited in the article?

    • Hi Dave, thanks for the feedback! Yes I agree with you that once you have it setup, then it should look less complicated. I think that many strategies look complicated at first glance because there could be new rules or tools incorporated into it and that always takes some time to get familiar with.
      At the root of the strategy is the tenkan and kijun. These 2 things can be quickly checked:
      1) Does the tenkan have an angle?
      2) Does the tenkan angle match the trend?
      If both questions have yes an answer, then we can keep an eye on that pair.
      No only the EURAUD has been tested. I do think that the strategy could work well on others like EURJPY, GBPJPY, USDJPY, GBPAUD, other Yen and Aud pairs, EURUSD, GBPUSD, but maybe not so good on USDCAD, CAD pairs, USDCHF. That is my expectation. Trending pairs are better than slow moving ones like EURGBP.

  2. I have another question. If using the Tenkan trail stop gives you roughly 3 times the average gain of using the parabolic trail stop, why would you even consider using the parabolic?

    • The Parabolic can smoothen the equity curve. The Tenkan trail had a better performance because it was able to capture the big runs. But when the trade did not go for a big run, then the Parabolic was able to exit at a break even, small loss or small win; whereas the Tenkan exit result was often worse. So the Parabolic smoothens out the bad times, but does well in good times, which means it can limit drawdown compared to only using the Tenkan trail.

    • Hi John, thanks for the questions.
      The Parabolic settings are 2 and 5. The values can be changed in the parabolic properties in the field โ€œstepโ€. The Tenkan and Kijun of the Ichimoku are standard settings. I then remove the other parts of the Ichimoku indicators.
      Let me know if you have follow-up questions. Wish you good trading!

  3. HI Chris,
    I really like this stategy, its simple and does a good job catching the big moves.
    Iโ€™m looking at trading a dozen pairs, using the daily charts, so I only have to look once a day.
    Have you tried this using daily charts?
    Thanks

  4. Parabolic settings on Mt4 is 0.02/0.2 default. The 2 and 5 settings for this strategy, how do I achieve this on Mt4? Though, I have the settings as 0.02/0.2 and 0.05/0.2 on my chart, Is that the required settings?

  5. Hi, Love the strategy. I love to be able to wait for the Tenken to tick up or tick down which ever way that you are trading. You could enter in when the candle goes through the kiyjin, but the ichimoku averages also act as dynamic support and resistance. I might add a Williams fractal and as the fractal is formed below the kiyjin and Tenken, (if trend is going down) to wait for the first fractal to form and wait for the price to trade through the fractal. Excellent strategy overall!! I will probably start using it myself. Thanks for the opportunity to contribute!

  6. What i donโ€™t realize is actually how youโ€™re not really much more well-liked than you may be now. You are very intelligent. You realize therefore considerably relating to this subject, made me personally consider it from so many varied angles. Its like men and women arenโ€™t fascinated unless it is one thing to accomplish with Lady gaga! Your own stuffs great. Always maintain it up!

  7. Everything is very open and very clear explanation of issues. was truly information. Your website is very useful. Thanks for sharing.

Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. No information or opinion contained on this site should be taken as a solicitation or offer to buy or sell any currency, equity or other financial instruments or services. Past performance is no indication or guarantee of future performance.