The four hour chart sits in a sweet spot between day trading and long-term investing. It provides enough detail to identify precise entries while filtering out the noise that plagues shorter timeframes. Many professional traders consider the 4H chart their primary analysis tool.
Why Trade the Four Hour Chart?
Advantages
- Less noise: Filters out minor fluctuations that cause false signals on lower timeframes
- Work-life balance: Only need to check charts every 4 hours, not constantly
- Better risk/reward: Larger moves mean better profit potential per trade
- Reduced transaction costs: Fewer trades mean lower commissions and spreads
- Time to analyze: 4 hours between candles gives time for proper analysis
Compared to Other Timeframes
The 4H chart offers unique advantages:
- vs 15-minute: Much cleaner signals, less overtrading
- vs 1-hour: Better trend identification, fewer false breakouts
- vs Daily: More trading opportunities, tighter stops possible
Ideal for: Traders who cannot watch screens all day but still want to actively manage positions. Perfect for those with day jobs or other commitments.
Setting Up Your 4H Charts
Essential Indicators
Keep it simple on the 4H timeframe:
- Moving averages: 20 and 50 period EMAs for trend direction
- RSI: 14 period for momentum and divergences
- Volume: To confirm breakouts and reversals
- Support/Resistance levels: Draw key levels from daily chart
Multiple Timeframe Analysis
Combine the 4H with other timeframes:
- Daily chart: Identify the overall trend and major levels
- 4H chart: Find your entry setup
- 1H chart: Fine-tune entry timing if needed
Multi-Timeframe Example
Daily: Stock in clear uptrend, approaching support
4H: Price forming bullish flag pattern at support
1H: RSI showing bullish divergence
Action: Enter long on 4H breakout of flag pattern
Popular 4H Trading Strategies
Trend Following
Trade in the direction of the dominant trend:
- Identify trend on daily chart (price above/below 50 EMA)
- Wait for pullback on 4H chart to moving average
- Enter when price resumes trend direction
- Stop below recent swing low (for longs)
Breakout Trading
Trade significant level breaks:
- Identify consolidation patterns (triangles, rectangles, flags)
- Wait for 4H candle close beyond the pattern
- Confirm with increased volume
- Enter on the breakout candle close or on first pullback
Support and Resistance Bounces
Trade reactions at key levels:
- Mark significant support/resistance from daily chart
- Wait for 4H price to reach these levels
- Look for reversal candlestick patterns
- Enter with stop just beyond the level
Entry Techniques
Candlestick Patterns
High-probability 4H reversal patterns:
- Engulfing patterns: Strong reversal signal at key levels
- Pin bars: Rejection of price level
- Inside bars: Consolidation before continuation
- Doji: Indecision that often precedes reversals
Indicator Confirmations
Use indicators to confirm candlestick signals:
- RSI divergence adds conviction to reversals
- MACD crossovers confirm momentum shifts
- Volume spikes validate breakouts
Pro tip: Wait for the 4H candle to close before entering. Many promising setups fail in the final hour. Patience pays off on this timeframe.
Risk Management on 4H Charts
Stop Loss Placement
Common approaches:
- Beyond recent swing: Place stop below/above the most recent swing point
- ATR-based: Use 1.5-2x the 14-period ATR
- Beyond key level: Just beyond significant support/resistance
Position Sizing
Calculate position size based on:
- Account risk per trade (1-2%)
- Distance to stop loss
- Ensure stop placement is logical, not just mathematical
Position Sizing Example
Account: $25,000
Risk per trade: 2% = $500
Entry: $50
Stop: $48 (2 points away)
Position size: $500 / $2 = 250 shares
Trade Management
Taking Profits
Options for profit taking on 4H trades:
- Fixed target: 2:1 or 3:1 risk/reward ratio
- Previous swing: Target the previous swing high/low
- Trailing stop: Move stop to lock in profits as trade moves
- Scale out: Take partial profits at targets
When to Check Charts
Optimal checking schedule:
- At each 4H candle close
- Before bed and after waking
- At market open if you have open positions
- Alert-based checking when levels are approached
Common 4H Trading Mistakes
- Overtrading: Not every 4H candle is a trading opportunity
- Ignoring higher timeframes: Always know the daily trend
- Entering before candle close: Wait for confirmation
- Too tight stops: Give trades room to breathe
- Switching timeframes: Stick to your chosen timeframe
Track Your 4H Trades
Understanding which setups work best on the 4H timeframe requires tracking your trades. Pro Trader Dashboard helps you analyze your performance across different strategies.
Building a 4H Trading Routine
Daily Routine
- Morning: Review overnight 4H candles, update watchlist
- Midday: Check for setups forming, manage open trades
- Evening: Review day's action, plan for next session
- Weekend: Weekly review and preparation
Summary
The four hour chart offers an excellent balance between precision and perspective. It filters noise while providing enough trading opportunities for active traders. Success on this timeframe requires patience, proper risk management, and respect for higher timeframe trends. Focus on quality setups, wait for candle closes, and always know where your stop is.
Learn more about timeframe analysis with our guide on swing trading for beginners or explore multiple timeframe analysis.