4H Box Breakout Strategy
There are many trading systems for breakout range. A Canadian trader developed an original strategy using this method and shared his experience of trading. The idea is to break through the range of a four-hour candle. Four-hour charts are usually analyzed in weekly periods. Therefore, all actions are tied to the opening of the trading week. In this system, the trading week begins with the opening of the Australian session. Therefore, the time of formation of the first candle is calculated by GMT-21:00 – 01:00. You can use the Time zone conversion service to determine the operating time in your terminal.
The strategy has been tested for several years and has proved itself best on the yen pairs: GBP/JPY, EUR/JPY, AUD/JPY, CHF/JPY, CAD/JPY. It’s preferable to a pound of poundtoyen.
The work is structured as follows. The four-hour chart shows the range, the upper limit of which is 10-20 points above the maximum of the first candle after the opening of the week, and the lower limit is 10-20 points below the minimum. Next, the rules are simple. We buy at the top border breakthrough, we sell at the bottom border breakthrough. That is, pending Buy Stop and Sell Stop orders are placed. To simplify the work, special indicators 1 Box 4 A and 1 Box 4 B have been developed, which show the boundaries of the working range and take Profit levels
Example of trading with the 4H Box Breakout system. Stop loss is set at the opposite end of the range. Each Take Profit level in points is equal to the bandwidth. In this case, the Sell Stop order was triggered, but the price did not reach the Take Profit level and went in the opposite direction. Next, the Stop Loss and the Pending Buy order triggered.
In this system the correct exit from the deal is much more important than the entrance. Mathematical method and statistical data are used here. The simplest option is to close the position at the end of the week. According to the statistics, the price moves in the selected direction until the end of the week.
The author of the strategy recommends different levels of takeprofit for different pairs in his experience.
GBP/JPY – 4x EUR/JPY – 3x AUD/JPY – 2x
As a result, he gets about 250 points a week.
However, takprofit should be at least 2x. In this case, even with a 50% probability, the trader will always win. Approaches to trading can also be applied differently. Some traders focus on one pair, while others distribute the risks into several yen crosses. The correlation between the pairs should be taken into account. For example, GBP/JPY and EUR/JPY correlate by 70-78%. GBP/JPY, AUD/JPY and CAD/JPY by 85-97%. EUR/JPY and CHF/JPY by 90-97%.
This system can be applied to other currency pairs, but in this case you will need to test and develop your own rules of exit from the deal.