Guide · Breakouts & channels
Does Four-Week Rule work?
Across 375 stocks, Four-Week Rule cut the worst fall on 85%, beat buying and holding on risk-adjusted return on 20% and on raw return on 19%. Mainly a seatbelt: it softened the big falls on most stocks, but usually gave up return to do it.
What it predicts
Buy when price closes above its highest high of the last four weeks; sell when it closes below the lowest low.
- In when a daily close is above the prior 20-day high.
- Out when a daily close is below the prior 20-day low.
Breakouts & channels plays bet that when price escapes the range it has held for weeks, the move that follows tends to run. The family guide
How to use it
- Expect to be wrong more often than right: only 36% of its calls worked. Its results come from the size of the winners, so following it means sitting through strings of small losses.
- It worked best on Financials (46% beat holding on risk-adjusted return) and worst on Big tech (0%).
- Use it as one input. Your signal combines the plays you count with the other factors you weight into one call.
When it worked
Four-Week Rule did best against holding in the COVID drop (+20% median gap) and worst in the 2020–21 rally (−29%). Median gap in return against holding the same stock (per year over stretches longer than 18 months; crypto excluded).
| 2008 crash | Recovery 2009–19 | COVID drop | 2020–21 rally | 2022 bear | Since Oct 2022 | |
|---|---|---|---|---|---|---|
| Four-Week Rule | +19% | −9% | +20% | −29% | +8% | −10% |
Where it worked
By kind of stock: how often it beat holding on risk-adjusted return, and the median Sharpe ratio gap.
| Group | Beat holding, risk-adjusted | Sharpe gap |
|---|---|---|
| Financials | 46% | -0.04 |
| Real estate | 37% | -0.03 |
| Industrials & rentals | 33% | -0.07 |
| Micro caps | 33% | -0.16 |
| Healthcare | 28% | -0.16 |
| Industrials & materials | 24% | -0.15 |
| Software & devices | 18% | -0.25 |
| Energy & power | 15% | -0.18 |
| Semiconductors | 13% | -0.21 |
| Consumer & retail | 12% | -0.21 |
| Metals & mining | 12% | -0.20 |
| Media & telecom | 10% | -0.18 |
| Sectors | 0% | -0.19 |
| Indexes & ETFs | 0% | -0.09 |
| Big tech | 0% | -0.10 |
Where it helped most
Sharpe ratio gap against holding, stocks with 3+ years of history
Right now
Four-Week Rule holds 161 of 377 names as of the Oct 13, 2026 close.
Changed its call in the last two weeks:
Backtest results since 2005 (or as long as each stock has traded), against holding the same stock over the same dates, after 0.05% per switch. Past results don't promise future ones. This analysis does not constitute trading advice. Please meet with an advisor or independently review sources before making any decision.