The free currency system we are going to look at in this article is from a true trading great - Richard Donchian. Since Donchian developed It, in the late nineteen seventies to trade commodities, traders have been making money with it ever since. The trading system works on any trending market and Forex markets trend so well, so its an ideal tool to use in your Forex trading strategy for bigger currency profits. You might be thinking can a free currency trading system really work? Well lets take a look at it in more detail and you will see why its a trading tool you should consider using.
The 4 Week Rule is simple one rule system and the trading signal is generated in the following way:
Buy a currency when it breaks to a new 4 week high.
Hold the position until a new 4 week low is hit and liquidate the long position and go short.
After this is done, you keep taking positions as new 4 week highs and lows are hit and always keep an open position, in the currency pair your trading at the time.
The 4 Week Rule and Generating the Trading Signal
This system is simple but its simplicity doesn't mean it doesn't make profits, it makes great long term profits. Always keep in mind that simple Forex trading systems work better than those that are cluttered with lots of inputs and variables to enter the market – the 4 Week Rule is simple with just one 1 rule, robust and will capture a good amount of all major trends. The 4 Week Rule works very well over the long term and is based on logic which will never date which is – currency markets are volatile and when trends occur, they can last for long periods of time and it gets into these by trading breakouts
Logic Behind the 4 Week Rule
The 4 Week rule is a breakout system based on price action only. There are no indicators but if you look at a price chart you will see why breakout trading is so effective and why, this is one of the best breakout strategies of all.
If you look at any currency, you will see it trades for long periods up or down and these trends can last for weeks, months or in some instances they can go on for a year or more. If you look closely at any currency trading chart you will also see, all big trends start and continue by breaking to new highs or lows. As long as markets trend the logic of the 4 Week Rule will mean it's effective and in a free market, you will always get trends
Which Currency Pairs Does it Work On?
It will work on any currency pair – its designed to catch big trends in the market which last for weeks to months or longer in duration. It should of course be traded on a portfolio of uncorrlated pairs because its a long term trend following system and for long periods of time currency pairs don't trend. By trading a portfolio of pairs, the moving pairs will make up for those pairs which are in sideways channels or consolidating. The system will work on an liquid financial instrument which trends and of course, was originally designed to trade commodity futures and trading futures, offer an excellent opportunity to seek long term profits with the system.
Stop Filters
Some traders like to use a filter, once in the market and use stops at 1 or 2 week moving averages and then go flat, until the next 4 week high or low is made to smooth the equity curve and cut down retracements in the equity curve. My own view is to test various moving averages like the 1 or 2 week and others if you wish but I use it in its original form and while it does have sharp draw-downs in the short term, long term its trading signals give excellent results.
Which ever way you use the system, it has been profitable for over 30 years and will never go out of date as long as currencies trend it will make money.
Discipline and the 4 Week Rule
If you want to follow the 4 Week Rule, you need to be disciplined, as it's not fussy about entry in terms of its trading signal and at the end of the trend, it will give a good bit of profit back but think about it this way
You don't know when a trend will end anyway and if you caught 50% of every major trend, you would be very rich. If you look over the long term you will get periods of losses but if you are patient with the system, you will find the system will deliver you great long term Forex profits. In my view to judge the trading programs potential you need to trade at least 6 currency pairs for 3 years and if you do this you will see that it can make returns which will beat many of the top fund managers.
A FREE FX Trading System Anyone Can Use
The 4 Week Rule is profitable and can be operated in less than 30 minutes a day and furthermore, you don't even need a computer to do the calculation, you can do it on a calculator or in your head. If you use this trading system you will be in very good company, because even great traders like Richard Dennis were fans and if he respected it then, its well worth you taking a look at the system and don't be fooled by its simplistic rule – it actually works.
You can run it in demo account or across back data, to see the results. Also any test you run will be very realistic as it only has one rule, it cannot by its very nature be curve fitted to price. The results you will see in a test backwards, will very similar to its performance in actual trading conditions. You can run a test and see its profit power for yourself before trading.
In Conclusion
This simple, currency trading system makes money and if you use it in your currency trading strategy, you will have something for free which makes money and while Richard Donchian has passed away, we should all be grateful for this highly effective currency trading tool for profit. Check it out, you have everything to gain and nothing to lose by doing so as its a free currency trading system and it won't cost you a cent but could help you achieve, long term currency trading success.
