Lesson 3: Rule of Four
The first step here is to determine the intermediate period and it should show a
standard as to how long the average trade is held. Following that, you need to
choose a shorter term period and it must be at least one-fourth of the medium term
time frame (e.g. a 15-minute chart fort the short one and a 60-minute chart for the
Next, using the same calculation, the long-term time frame should be at least
four times bigger than the medium period (sticking to the example, the 240-minute or
a 4-hour chart would round out the three time frequencies). When choosing the
range of the three periods, It's important to select the correct time frame. A
15-minute, 60-minute, and a 240-minute combination will not benefit a long-term
forex trader who holds particular positions for months.
Likewise, a day trader who holds positions for hours and hardly ever longer
than a day will have no use for daily, weekly, and monthly arrangements.
Still, that doesn't mean that a long-term trader won't find any advantage in monitoring
a 240-minute chart or the short-term trader in relying on a daily chart, although these
must come at extremes instead of anchoring the whole range.