Trading in 4-hour and Daily timeframes

These two timeframes (H4, D1) are perfect for trading the forex market. 4-hour candles are very popular because the forex market is open 24 hours a day unlike any other market. This fact gives whole six 4-hour candles inside each trading day. Other markets, which are mostly open only 8 hours a day, create only two such candles so they are very much similar to daily candles and it makes them mostly useless. However, let’s focus on the forex market and see how these two timeframes can be used together.

Trading two timeframes is easier than following three timeframes. Moreover, faster timeframes give less profitable signals so it is better to avoid them. H4 and Daily timeframes should give traders approximately one good trade per day per currency pair which is more than enough to make good profits in the forex market. However, novice traders should only focus on eur/usd currency pair as it has lowest spreads and most precise technical behavior than any other currency pair.

There are some technical tools to trade charts and all of them allow taking a small advantage in trading. They include classical reversal patterns like double-tops, triple-tops and head-and-shoulders. They also include basic horizontal support/resistance lines, trend lines and channels. Any of the above technical tools can be applied to trading in two timeframes; however, to keep this article simple, let’s focus on basic trend lines. It is a great technical tool which tends to work in any financial market.

To trade in two timeframes consider the following technique. Firstly, open a daily (D1) timeframe of your preferred currency pair and draw most probable potential trend lines. If there are a lot of them, it is a bad situation. In this case, try to choose the most appealing one from above for the resistance line and one from below for the support line. Next look whether the price is near one of these levels which just have been drawn. If the price is near to ascending support trend line then it’s a potential buy situation. Likewise, if the price is close to descending resistance line it’s a potential sell situation. These are the best two signals you can ever get in trading trend lines. Unfortunately, this happens rarely, only once in a month or so. Thereby, if there is a signal on a daily timeframe then it is better to wait while the price gets closer to these levels and then take action. Otherwise, if the price is far from daily resistance/support trend lines and there is no chance that the price can hit those levels in the near time (~ 24 hours) then it is better to switch to 4-hour timeframe.

In the 4-hour timeframe, there is a much bigger chance to find a good signal. You have to repeat all of the above steps and draw all the lines. Once you find a trend line which is close to the current price, you’ll have to wait till the price hits it in order to take action. However, there is a catch. The market always pays more attention to daily timeframe. So, if you’re going to open trades in H4 you should always check whether your entry and most importantly exit levels do not interfere with trend lines of a daily timeframe. Although it should happen rarely because trades in H4 should be done quick with much tighter stop-loss and take-profit targets.