If you want a proven forex trading system that’’s totally mechanical then you”re in the right place. This one works, will continue to work and is simple to understand - in fact, you don”t even need a computer to do the calculation! Let’’s look at it.
Before we look at this system, let’’s look at some basics in terms of successful systems:
- They tend to be simple not complicated and this makes them more robust in the face of brutal ever changing market conditions.
- They should be based on trend following.
- The system needs to be based on logic you understand otherwise; you will not have the discipline to apply it.
The system we are going to look at was developed by trading legend Richard Donchian and was originally developed to trade commodity markets in the late seventies.
It works on ANY trending market and forex markets offer great trends.
It’’s been the basis of many trading systems over the years and trading legends such as Richard Dennis were fans and if they take it seriously so should you - so here is Richard Donchains 4 Week rule:
Cover short positions and enter longs when a price exceeds the highs of the previous 4 calendar weeks. Cover long positions and enter shorts when a price falls below the lows of the previous 4 calendar weeks.
The system is a stop and reverse system meaning a position is always maintained in the market.
How simple is that?
Very, but don”t think that because it’’s simple it doesn”t make money it does.
It’’s based on the fact that most market trends from new market highs or lows and is essentially a breakout system.
It works great when markets trend and you will be on the right side of all major trends however, like all trend following systems it will run into losses when markets don”t trend. You should therefore add a filter to keep losses down.
Here are some suggestions:
- Enter positions on the 4 week rule - but use a stop on a shorter cycle 1 or 2 weeks then go flat, until the next 4 week signal.
- Exit on a moving average of between 7 - 15 days.
Both the above will help restrict drawdown; you can test the above and see which is best for you.
A word of warning this system is simple and works long term but you have to have discipline to follow it - it will have short term drawdown (all systems do) and it’’s not fussy about exact market timing - but if you have discipline you will find it’’s a great simple system that will help you seek long term profit potential.
The above may not be trendy or complicated - but like we have said, that doesn”t mean you won”t make a lot of money. Forex trading robots are all the rage and you can buy loads on the net - but they always come with a simulated paper track record and cost you. This one works and doesn”t cost you a cent and will beat the lot of them longer term.
If you want a simple forex trading system which makes money - look no further than Richard Donchain’’s 4 week rule.
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