Trading 4 hour charts

The question that’s often asked is: What’s the best timeframe to trade?

Of course, the answer is: That depends.

But that’s not particularly helpful to anyone trying to find the right path for their trading.

The way we divide up price movements into chunks can feel pretty arbitrary. What’s so special about a 1-hour timeslot or a 5-minute candle that it deserves its own open, close, high and low?

One timeframe that can seem especially baffling to the novice is the 4-hour candle.

Why 4 hours?

Why not 3 hours?

Why not 2 hours and 24 minutes?

Well, here I’d like to show you that 4 hour timeframes aren’t dreamt up on a whim. They have very good grounding on the way markets behave, and can give us unique at-a-glance insight.

‘Curation’ is a millennial buzz word

Facebook and Instagram have given ‘curation’ a bad name, where mysterious algorithms decide for us what we ‘want’ to see. However, in a world where we can have almost unlimited information thrown into our laps, we need a way to filter out what’s most relevant.

And that’s exactly what the 4-hour chart can do for us.

Here’s how it works …

Forex is the market that never sleeps. As one side of the planet closes up, the other side is just getting to their desks. But, each of those global trading sessions has a very different personality.

Here’s how the sessions spread themselves over a 24-hour period …

Depending on where in the world your charting package is calibrated from, your 4-hour candles could start at a different time, but on a London timeframe, it’ll look something like this …

Here you can see how different trading sessions overlap and dominate individual 4-hour candlesticks.

The midnight to 4am, and 4am to 8am candles are predominantly in the Asian session. However, the 4am candle will be influenced by the opening of the European markets.

The 8am-12noon candle will often be a response to the opening of the European session, which kicks off with Frankfurt at 7am.

The 12pm to 4pm candle is dominated by the opening of the US markets, and any data releases stateside, with the following candle, showing the reaction to that opening among traders.

With the 8pm-midnight candle, we’re covering the tail-end of the US session, and moving back into the Asian session.

Each new session that starts is reacting to what’s gone on in the previous session.

Reading the 4-hr bars

The 4-hour candle gives a lot of price-action information – telling us how prices behaved in each session, and how new markets waking up have influenced prices.

The length of the candle body tells us about buying or selling pressure during that session. A long green candle shows the bulls in control, while a long red candle is a sign that bears are winning the battle.

The wick tells us about the trading range of that 4-hour period, but also reveals a lot about trader sentiment. Long lower wicks show a fear among traders of downside, as buyers have come in and taken control when the prices hit these lows. Conversely, a long upper wick shows traders fearing the upside, as they take profits at highs.

A 4-hour candle represents about half of a trading session, so will be comprised of a huge flow of orders. It’s a great snap-shot of market sentiment in that session. If a 10-minute candle shows a big move, and a retracement, then yes – this can be rejection of a new level. However, if a 4hr candle shows these moves, it’s going to much more significant – traders have held off a price move for 4 hours, not just 10 minutes.

Plus, for those of us who like to keep our trading simple and not too time-consuming, the 4-hour chart allows us to react to price action during the day, without having to check charts every hour (or more often than that). Four-hour charts offer very civilized trading times, when we check once in the morning, midday, afternoon and evening.

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