One potentially beneficial and profitable Forex trading strategy is the 4-hour trend following strategy which can also be used as a swing trading strategy. This strategy uses a 4-hour base chart to screen for potential trading signal locations. The 1-hour chart is used as the signal chart, to determine where the actual positions will be taken.
Always remember that the time-frame for the signal chart should be at least an hour lower than the base chart. For this Forex strategy, two sets of moving average lines are chosen for the best results. One will be the 34-period MA, while the other is the 55-period MA. To ascertain whether a trend is worth trading, the MA lines will need to relate to the price action.
In case of an uptrend, the conditions that need to be fulfilled include:
- Price action is above the MA lines
- The 34-MA line is above the 55-MA line
- The MA lines are sloping upwards
In case of a downtrend, the following conditions need to be fulfilled:
- Price action is below the MA lines
- The 34-MA line is below the 55-MA line
- The MA lines are sloping downwards
The MA lines will be a support zone during uptrends, and there will be resistance zones during downtrends. It is inside and around this zone that the best positions for the trend trading strategy can be found.
Below is a daily chart of GBPUSD showing the 34-exponential moving average (purple line) and the 55-exponential moving average (red line) on the chart:
Source: Admiral Markets MetaTrader 4, GBPUSD, Daily chart (between 4 September 2018 to 31 May 2020). Accessed: 31 May 2020 at 2:45 pm BST – Please note: Past performance is not a reliable indicator of future results or future performance.