The 4HR GBPUSD Forex Trading Strategy is a trend trading forex strategy that has the potential to average more than 100 pips a month in profit ( if there is a good trending market in the GBPUSD currency pair).
Time Frames Required
The 4hr GBPUSD strategy is a multi-timeframe trading strategy so you require the 4hr chart as well as the daily chart.
You need both timeframes to make your trading decision.
Here’s the important thing you need to know:
- The daily timeframe is used to identify the main trend, where the market is up or down
- and the 4hr timeframe is used for your trade entry.
Forex Indicators Required
You need a few forex indicators for this trading strategy and here they are:
- slow stochastic indicator with these settings(13,5,5) applied to both charts,
- Exponential moving average 4, EMA14, and EMA 50 on the 4hr chart.
Before you buy or sell, you need a good filter to filter out potential bad trade setups with this forex strategy. Your filter is the stochastic indicator.
You need to check the stochastic indicator on the daily chart
- For Valid Long Entry: Slow %K above Slow %D on the Daily Chart
- For Valid Short Entry: Slow %D above Slow %K on the Daily Chart
Note: the %K&%D on the stochastic indicator are the two lines seen on the chart above,that would cross each other similar to a moving average cross over.
The reason for doing this pre-trade check on the daily timeframe is to simply to identify the main trend first because the daily trend has a lot more weight than the trend in the 4hr timeframe.
4Hr GBPUSD Trading Strategy Rules
Here are the selling rules:
- when 4 EMA first crosses 50 EMA followed by 14 EMA to the downside on the 4hr chart, then open a sell trade at market order or with a sell stop pending stop order on the new opening candlestick
- Place stop loss should at 50 pips.
- You can set your take profit at 150 pips which is 3 times what you risked or Exit the trade when 4 EMA reverses and crosses 14 EMA on the next open candle.
This chart below show you the how to take a short(sell trade) and where to exit:
Here are the buying rules:
- when 4 EMA first crosses 50 EMA followed by 14 EMA to the upside on the 4hr chart, then open a buy trade at market order or with a pending buy stop order on the new opening candlestick
- Place stop loss should at 50 pips.
- You can set your take profit at 150 pips which is 3 times whatyou risked or Exit the trade when 4 EMA reverses and crossed 14 EMA on the next open candle.
Advantages of The 4HR GBPUSD Forex Trading Strategy
- You enter a trend just (or right after)after exponential moving average crossovers happen so this allows you to get into a trade just after a trend has started instead of getting on a trade at halfway point of a trend in progress.
- If the trend is strong, you’d easily makes some good amount of pips (potential for 100 pips plus profits or more) because this is based on a 4hr timeframe.
- when you use the stochastic as a filter on the daily timeframe for trend direction, you eliminate going against the main trend and increase your chances of your trade being successful when you take it in the 4hr timeframe.
Disadvantages of The 4HR GBPUSD Forex Trading Strategy
- The entry of the 4hr GBPUSD Trading Strategy is the biggest problem simply because it uses moving average which are lagging indicators. The ideal entry point would have been anywhere from 2-7 candlesticks prior.
- another potential problem with this strategy is that sometimes, when you enter a trade, the market may be due for a temporary pullback or rally and if your stop loss is close by, you are going to get stopped out.
- The 4hr GBPUSD forex trading strategy will perform badly in ranging market as it is designed for a trending market.
Can the 4HR GBPUSD Forex Trading Strategy Be Applied To Other Forex Pairs?
Yes, you can. But I suggest that you only trade currency pairs that have good trending characteristics.
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