Many forex traders want to trade on auto pilot and simply follow trading signals generated by a system, without having to make subjective judgements. Here we are going to give you one for FREE which is proven in terms of its profit potential.
The system is Richard Donchian’s 4 Week rule and has been the basis of many successful trading systems around the world.
Big fans included trading legends such as Richard Dennis, so if its good enough for him its good enough for you!
The system was originally developed in the late 70s to trade commodities but can be used on any trending market and currencies trend well.
Now this system is so simple it consists of just one rule and here it is:
1) Close any short positions and go long whenever the price exceeds the highs of the previous 4 calendar weeks.
2) Close any long positions and go short whenever the price falls below the lows of the previous 4 calendar weeks.
If the system is run with a SAR (stop and reverse), the above system will always maintain a position in the market (either long or short).
Does it work?
Back test and you will see it does.
Of course it works very well in trending markets ensuring you are on the right side of every big move –
but like all trading systems there is a downside:
It will get whipped in a choppy sideways market and here you may wish to consider some filters:
A common solution to this problem is to enter on the 4 week rule (the breakout), and to exit on a shorter time frame such as 1 or 2 weeks.
Traders can also use other exit rules i.e. exit when a moving average is broken. For example, applying a 10-day moving average as the exit – A 10-day moving average is one-half of the entry signal (four weeks is of course 20 trading days) is period we like. You can also experiment with ADX RSI and MACD filters if you wish.
Many traders ignore this system; after all it’s not trendy or complex like chaos theory or artificial intelligence based systems, or full of mystical nonsense like Gann, Elliot Wave or Fibonacci – but it works.
Simple systems work better than complicated ones as they have fewer elements to break. If you are interested in making money long term and have a disciplined nature you will like this system.
If you believe complexity will beat the markets, they move to a scientific theory or enjoy the buzz of trading frequently – you won’t like it – This system is all about making money long term in a disciplined fashion.
The 4 week rule is simple you can customize it to restrict losses, by adding filter and it will have you on the right side of every major move – do that and you have great profit potential.
So if you want to trade forex on autopilot and make big long term gains, consider this free system and you maybe glad you did.