Here we will outline a free currency trading system that will out perform 95% of the systems sold by vendors on the net and the rules are free and enclosed. This system is simple (effectively one rule), was developed by a true trading legend, so let's take a look at it.
The system is:
Richard Donchian's 4 week rule.
The Four-week Rule is a basic method which was developed in the seventies - but is a profitable method that still works and is used today. The 4 week rule has been used as an effective base for many profitable currency trading systems. It works well in up or down trends, but not sideways trends - but as currencies tend to trend well this system over the longer term tends to produce nice profits.
Simple but Effective
All the best currency trading systems are simple and this one could not be simpler.
Don't make the mistake of thinking because it is so simple it won't work - test and you will see it does.
The Rules
The original rules were used for trading commodities (although it can trade any market) and were simple:
1) Cover short positions and go long when a price exceeds the highs of the previous 4 calendar weeks.
2) Cover long positions and go short when a price falls below the lows of the previous 4 calendar weeks.
The problem with the system is that when the market is not trending, the system will produce lots of whipsaw moves which can cause drawdown and affect the performance of the system.
Coping With Sideways Markets
A good solution to this problem is:
To enter on the 4 week rule (take the breakout), and exit the position on a shorter time frame. Periods that could be used are 1 or 2 weeks.
You would then wait for the next 4 week signal to re enter.
One of the Most Influential Traders of All Time
Richard Donchian is known as the father of modern day trend following and a pioneer of trend following analysis and although he is dead now his legacy lives on. He has influenced many of the world's best traders, including such legends as Richard Dennis.
In fact, the 4 week rule was taught to Dennis's famous turtle traders who made over 100 million in just 4 years!
Don't assume because this currency trading system is simple it doesn't work - it does.
The system may not be as trendy as a neural network or artificial intelligence based systems but I would wager it would out perform most of them.
Why You Should Consider It
I have incorporated the 4 week rule in my own trading for many years and made a lot of money with it and keep in mind:
If it's good enough for the trading systems of legends such as Richard Dennis, then it should be good enough for you.
