After experiencing some unexpected market volatility over the past couple of weeks, I decided to step back and do what disciplined traders should do when market conditions expose a weakness: I went back to my charts and started backtesting.
My goal was not to completely change my trading method or add a dozen new indicators. It was to determine how I could add another layer of confirmation to my 4-hour entries so that I am not entering too early, especially when price has reached an important zone but has not yet clearly confirmed its direction.
Based on the backtesting I have completed so far, this refinement looks very promising. It allows me to keep the 4-hour chart as my primary setup and execution chart while also seeing important information from the weekly, daily, and 1-hour timeframes—all on one chart.
What the Boxes Represent
The red box at the top of the chart represents last week’s high zone, extended into the current trading week. This is an area where price previously encountered resistance, so I will be watching closely to see how price responds now that it has returned to it.
The green box near the bottom of the chart represents last week’s low zone, which has also been extended into the current week. This gives me a clearly defined area of potential support if price begins moving lower.
Price recently made a strong bullish move away from the lower portion of the chart and has now reached the red high zone. However, reaching a zone is not the same as confirming an entry. A zone tells me where to pay attention; price action tells me what to do.
That distinction is especially important here because USDCHF arrived at the high zone with considerable bullish momentum. I am not going to assume that price must sell simply because it has reached resistance.
What the Horizontal Lines Represent
The horizontal lines allow me to see the location of several important exponential moving averages without constantly moving between multiple charts.
The pink horizontal line represents the weekly 8 EMA. The blue line represents the daily 8 EMA, the yellow line represents the daily 20 EMA, and the red line represents the daily 200 EMA.
The orange horizontal line represents the 1-hour 20 EMA. This is the additional confirmation level I am testing to help determine whether price has genuinely confirmed the direction of a potential 4-hour entry.
I initially considered also including the 15-minute 20 EMA, but I decided against it. I want this refinement to simplify confirmation—not give traders one more reason to become confused. Because I am executing from the 4-hour chart, the 1-hour timeframe gives me enough lower-timeframe information without introducing the additional noise and frequent adjustments that can come from the 15-minute chart.
Keeping the Process Manageable
Although this chart contains information from several timeframes, maintaining it should require very little hands-on work.
The weekly 8 EMA horizontal line will only need to be adjusted once each week based on its current location. The daily EMA lines will be adjusted once per day. The orange 1-hour 20 EMA line will be updated whenever a new 4-hour candle begins to form.
That is it.
I am not interested in creating a system that requires me—or anyone learning from me—to sit in front of the charts all day moving lines around. The purpose of these levels is to provide greater clarity while keeping the process structured, repeatable, and manageable.
How I Will Use the 1-Hour EMA for Confirmation
Even though the orange line represents the 1-hour 20 EMA, I will not require traders to leave the 4-hour chart and search for a separate 1-hour candle close.
My execution remains on the 4-hour timeframe.
For a potential sell, I want to see a 4-hour candle close beneath the orange 1-hour 20 EMA. A wick through the EMA will not be enough. I want the completed 4-hour candle to demonstrate that price has moved beneath that lower-timeframe average and is beginning to confirm bearish direction.
The 1-hour EMA is being brought onto the 4-hour chart to provide additional information—not to change my execution timeframe.
The weekly and daily EMAs give me the larger market context. The 4-hour chart identifies the setup and controls the execution. The 1-hour 20 EMA provides the additional confirmation.
What I Need to See Before Considering a Sell
At the moment, price is testing last week’s red high zone. That places USDCHF in an important decision area, but I do not have a confirmed sell simply because price is inside or near that zone.
Before I consider a sell, I need to see price reject the red high zone and break back beneath it. I then want a 4-hour candle to close beneath the orange 1-hour 20 EMA, confirming that bearish pressure is becoming established.
After the break, I would prefer to see price retest the bottom of the red zone, the 1-hour 20 EMA, or an area where those levels closely align. That retest must fail, with price rejecting the area as resistance and producing bearish confirmation on the 4-hour chart.
In plain language, I want price to show me that it cannot remain inside the high zone, cannot reclaim the 1-hour 20 EMA, and is prepared to move lower. I am not selling the first bearish candle simply because the market paused at resistance.
If those conditions develop, I can then apply BRACE and evaluate the sell based on the confirmed break, retest, and 4-hour execution signal.
What Would Make Me Consider a Buy
The alternative scenario is that USDCHF does not reject the red high zone and instead breaks above it.
If price produces a convincing 4-hour close above the entire red zone, the immediate sell idea would no longer be valid. However, I still would not automatically buy the breakout candle after such a strong move upward.
Before considering a buy, I would want price to retest the top of the red zone and hold it as support. I would also want price to remain above the orange 1-hour 20 EMA and produce bullish confirmation on the 4-hour chart.
That would show me that the former resistance zone has potentially become support and that buyers are maintaining control above it. A confirmed break, successful retest, and bullish continuation signal would give me a much stronger reason to evaluate a buy than simply chasing price as it moves above the zone.
My Next Step
For now, I am waiting.
My sell scenario requires a rejection of the red high zone, a break beneath it, a 4-hour close below the 1-hour 20 EMA, and a failed retest that confirms resistance.
My buy scenario requires a decisive 4-hour close above the red high zone, followed by a successful retest that holds the zone as support while price remains above the 1-hour 20 EMA.
Until one of those two scenarios develops, USDCHF is still making its decision. My job is not to predict that decision ahead of time. My job is to prepare for both possibilities and execute only after price confirms which direction it is prepared to take.
That is the purpose of this refinement: not more indicators, more chart watching, or more trades—but better-confirmed entries and fewer premature decisions.
—D. Michele
State of Mind Trader
