The 4-Week High/Low Trading Strategy Explained

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The 4-Week High/Low Trading Strategy: A Simple Trend-Following System Explained

Strategies

When I first came across the 4-week high/low trading strategy, I was co-managing a forex dealing room for a commodities firm. Having spent years as an interbank dealer, this was my first real introduction to technical analysis. I was never quite sure whether to use the past 20 trading days or the prior 4 calendar weeks, but since it wasn’t a strategy I planned to use actively, I just kept it on my blotter as a reference point for what long-term traders might be watching.

What Is the 4-Week High/Low Strategy?

The 4-week high/low breakout strategy is a classic trend-following system that dates back decades and is still referenced today. Its core idea is simple: buy strength and sell weakness.

The Basic Rule

• Buy Signal (Long Entry): Go long when the price closes at a new 4-week high (the highest close over the last 20 trading days).
• Sell Signal (Short Entry): Go short when the price closes at a new 4-week low (the lowest close over the last 20 trading days).

This method assumes that breaking out of a 4-week range signals a potential trend continuation.

Stop Placement

In its simplest form, this is often a stop-and-reverse strategy:

• Enter on a break above the 20-day high and reverse (or exit) on a break below the 20-day low, and vice versa.

Of course, traders have developed many variations for stop placement, but those details go beyond this article

Why Stops Are a Trader’s Lifeline in Forex Trading

Strategies

Example: Gold (XAU/USD)

In this real-time illustration, XAUUSD broke out of consolidation and closed above its 20 day high at 6407.Using the 4-week high/low strategy, it triggered a long position and  fresh momentum to the upside,  We give it a Gold Star as it climbed to a new record high at 3578.

Is This the Same as Turtle Trading?

Almost! The 4-week high/low breakout rule was the foundation of the famous Turtle Trading system created by Richard Dennis and William Eckhardt in the 1980s.

• Turtle Rule:
  • Buy when price breaks above the 20-day high
  • Sell when price breaks below the 20-day low

Turtle Trading added layers of risk management, position sizing, and secondary breakout systems (like the 55-day rule), but the core concept came from the 4-week breakout strategy.

Why Use the 4-Week High/Low Strategy?

• Trend Identification: Signals when a market is breaking out of consolidation.
• Mechanical & Objective: Removes emotion from trading decisions.
• Works Best in Trending Markets: Performs well during strong moves but can struggle in sideways/choppy markets.

The 4-week high/low trading strategy remains one of the simplest yet most powerful trend-following techniques. While it might not suit every trader, understanding it can help you:

• Identify key breakout levels
• Spot potential momentum shifts
• Improve your overall market awareness

Even if you don’t plan to trade it mechanically, adding the 4-week high and low to your charting toolbox is a smart move for any trader.

A Personal Note

While I never adopted this system, I keep an eye on the 4-week high and low levels as a reference for momentum in trending markets. Knowing where those levels sit can help traders gauge whether a market is gaining strength or showing weakness.

Strategies

 

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