One of the most common misconceptions about trading systems is that they are very complex to understand. Because of this, some prospective investors believe that it’s only for people with a good background in finance and technology. Although there’s some truth about this notion, it is not outrightly correct. For instance, cryptocurrency trading is an example of an easy-to-use platform that even ordinary folks can navigate its features and attempt to generate income. Even if you are capable of joining this industry for good – it just takes a few reading of guides, and you’re good to go.
Suppose you have a grasp of the protocols and rules already; the next thing is working your way to achieving your financial targets. How are you gonna do? That is the ultimate question. Of course, you are not clueless on this subject. There are resources that can be accessed to enlighten you on the grey areas of the crypto market. A social trading platform is one reference where you can check updates and techniques from experts and apply them in your trading endeavors. Think you can do that? Read on the following facts and discover how a weekly rule system can be the simplest formula to succeed in crypto trading. If you’re looking for a reliable online trading platform, Bitcoin Pro App is your best choice.
What’s the Strategy All About?Â
In its simplest form, the weekly rule means buying when asset prices reach a new four-week high and then selling them when it hits a new four-week low. The first scenario happens when the prices exceed the highest level that they have achieved over the past four weeks. While the other happens when the prices are trading lower than they have at any time over the past four weeks. This system can be observed in any market, regardless of size.
This strategy will always fall on the right side of all the significant moves in a market. However, it may also have a low percentage of winning trades in some instances. More often, the concern is that the majority of markets trend about a third of the time. But there are markets where the four-week rule may be right less than 40% of the given attempts. Other trades may make up the small losses, which occur while the market consolidates with certain price movements.
How to Use the Four-Week Rule
Interestingly, the four-week rule is considered one of the most successful systems over the years. It is primarily used for futures trading but might also work in the stock trading system. This involves buying when the asset made a four-week new high and exiting the trade when the asset made a four-week low. You can employ this strategy by following these guides:
- Covering short positions and buying long when the asset price exceeds high levels of the four preceding full calendar weeks.
- Liquidating long positions and selling short whenever the asset price falls below the lows of the four preceding full calendar weeks.
Keep in mind that the four-week rule has major underlying assumptions. It helps to understand each one so that you’ll have a clear grasp of how the strategy applies in your crypto trading:
- The strongest trending actions generally start from new market highs and not from market lows. Investors who assume that buying low and selling high is a great way to make money are wrong. If you don’t buy breakouts from new highs, you could miss some of the best market trends.
- A market trend in motion is more likely to continue than reverse its course. In technical analysis, this is a basic building block, and there’s no better trend than one that is making new highs.
- The four-week cycle is the most dominant cycle in trading. But it can also vary at times depending on market progression.
Why the Four-Week Rule Works
This trading system is based on sound technical principles with mechanical and clear-cut signals. It is following a specific market trend, so you are guaranteed to be on the right side of every trend. Some financial experts say that the strategy is grounded on the famous trading wisdom, “let profits run while cutting losses short”. Additionally, you can take advantage of fewer trades, allowing less time to be spent on looking at the market, and you no longer need a computer.
Refining the Four-Week Strategy
Many investors have a common tendency of staying in a trade too long, which can be counterproductive. To avoid the consequences, you may consider having specific exit rules. For example, you can exit when a moving average is broken instead of just following the 4WR to exit a position. The best thing about this strategy is it does not limit your approach, and you are still free to incorporate other methods that work well in the given situation.
You can also use the four-week rule as a trend filter of the overall market. One of the challenges here is determining whether the market is bullish or bearish on a short-term basis. But applying the principles of the strategy allows you to objectively define the market trend. If the recent signal in the market is a buy, you can be confident that the market is in an uptrend.
Final Thoughts!Â
The four-week rule can prove very helpful when you are seeking to profit from crypto trading. It provides a clear basis on when to buy and sell your assets. But basically, you have to remain clever throughout the process because this market is highly volatile and unpredictable. You should not stick to one approach all along because predicting price movements would always be a challenging job.
As a good initiative, you can learn the most effective strategies in crypto trading today. This would require enough research about the industry and working hand in hand with industry experts. If you’ve been doing business for quite some time, this is not something new. But being open-minded about new updates and trends can unlock many opportunities and develop appropriate strategies that could work to your best advantage. You are in control – remember that!