of course you can do it, Just link your site to another, site A to B, B to C, C to D, D to A. But usually people will do 3 way link because it's simple.
3-way link exchange is undetectable since lets say I have A,B you have C A links to C C links to B See it isn't closed but 4-way exchange is a closed linwheel and is much easier to detect !
I agree with you, three way link is not closed actually it works some sort of one way link You can buil 4 way link but dont know is it good for seo. 4 way link will be like a linkwheel.