|By: Monica Hendrix|
In this article we will look at a free system that's used by some of the world's top traders and it's proven to make profits. If you use this system you will beat 99% of the forex trading systems sold by vendors online, so let's look at it.
The forex trading system were going to look at was devised by a trading legend - Richard Donchian who is considered the father of modern trend following and is considered a trading legend and has influenced such great traders as Richard Dennis and countless others.
The system is Richard Donchian's 4 week rule.
He originally devised it to trade commodities in the seventies but it's very useful for forex trading because it works well in trending markets and forex markets are great for long term trends. The system is incredibly simple but don't let that put you off, it makes money! The system is very robust and based on timeless logic.
It's a well known fact that the best forex trading systems are simple, as they are more robust than complicated ones that have too many elements to break.
Here are the rules:
1) Close short positions and go take a long position when a price exceeds the highs of the previous 4 weeks.
2) Close long positions and take a short position when a price falls below the lows of the previous 4 weeks.
Now the above will work very well in any trending market but in sideways markets it will get chopped about so you may want to consider a filter to take this into account.
The filter is to enter on the 4 week rule - but exit the position on a shorter time frame and go flat. 1 or 2 week cycles could be used for this; you would then simply re enter on the next 4 week signal.
Now you can test the above system and you will see it works but most traders wont bother using it - Why? Because it takes tremendous discipline to execute it and it's not a system that is particularly worried about price entry levels and most traders are obsessed with this.
It's also very often buying breakouts and most traders hate doing this because they would rather wait for the pullback, this is despite the fact most major trends start from new market highs NOT market lows.
Another problem is traders think it's too simple and prefer trendy systems which are more complicated (which don't work) this system doesn't have the buzz factor of being based on artificial intelligence or a neural network despite the fact it will beat most if not all of them longer term.
The pro traders however know its value and many systems by the great traders over the years have used it as a base - including the legendary turtle traders, who made $100 million in 4 years, with no prior trading experience. So yes it is simple but that doesn't mean it doesn't work it does.
Test it and you will see, so now you have a free forex trading system which since inception, has made traders hundreds of millions of dollars and could make some profits for you to.