A Common Sense approach to Price Observation
‘Buy when prices are going higher and sell when prices are going lower.’ In a nutshell, this is my goal when I am trading the Forex market. But this statement about buying when prices are going higher or selling when prices are going lower may be too broad and may need some guidelines and rules. This is where ‘The 3 Duck’s Trading System’ comes into play. This system will help you identify buying opportunities in the direction of the last uptrend and selling opportunities in the direction of the last downtrend.
The ‘ducks’ in the title comes from the saying ‘have all your ducks lined up’ an expression meaning to have everything in the correct order. There are three ducks, the first duck will help you to identify the last up or down trend, the second duck helps to confirm the direction of the trend and the third duck will help to identify buying or selling opportunities in the direction of the trend.
This system involves charting three different timeframes. The first timeframe is a 4-hour chart (the first duck), the second is a 1-hour chart (the second duck) and the third is a 5-minute chart (the third duck). A 60-period simple moving average is applied to all three timeframes. That is what I call keeping it simple!
How It Works:
Step 1 – The First Duck
The first thing to do is look at the 4-hour chart, which is the largest timeframe. This is done to see if current prices are above or below the 60-period simple moving average. From this chart, the current price is above the 60-period simple moving average. This observation tells us that we may be looking to buy.Â
Step 2 – The Second DuckÂ
The second thing we need to do is drop down to our 1-hour chart. We need to see the current price above the 60-period simple moving average on this chart also. This gives confirmation. Important: If the current price in this chart was below the 60-period simple moving average, we could not move on to Step 3.
As indicated by Steps 1 and 2, the current price level needs to be above the 60-period simple moving average on each chart. Now, we are on the 5-minute chart and are looking to buy the market when price crosses above the 60-period simple moving average. For extra confirmation, we should let price break the last high on the 5-minute chart. This means that price will be above the 60-period simple moving average on all three timeframes, making all 3 Ducks lined up in the same direction.
Stop-Losses Orders
This is where you can make this system your own. If you are a short-term trader, you may want to put your stop-loss below the low on the 5-minute chart or the 1-hour chart. If you are more of a positional trader, you may wish to put your stop-loss below a low on the 4-hour chart. You could also use a fixed value stop-loss, such as 25 or 30 pips from the entry.
This is dependent on the type trader that you are – so you decide! If you are a longer-term trader or investor, this system can help you get a good entry point into the market. Another ‘trick’ that may help you preserve capital, if you do buy and prices move back below the 5-minute 60-period simple moving average by 10 pips (not a good sign), you may want to cut your losses short before your stop-loss is hit. If you are a longer-term trader, this may not be a big deal for you.
Trade Targets
Once again, this depends on the type trader that you are but targets can be support or resistance levels.
Summary
The examples shown in the article were carried out when the EUR/USD was trading higher so obviously, we were buying.Â
The system works just as well for selling opportunities. Look for prices to be below the 60-period simple moving average on all 3 timeframes, starting with Step 1. I like this system a lot as it does not try to out-guess the market movements and pick tops and bottoms. The system quickly tells you to be a buyer or a seller. It is a good honest system that tries to follow prices.
This system works better on currency pairs such as the EUR/USD and GBP/UDS, but there is nothing to stop you from plotting this system on any pair. As we know, some pairs act differently than others. The best time I have found for trading this system is during the European and U.S. sessions. I like to use this system as a guide in addition to my own market knowledge. Take care to watch what is going on around you in the markets - economic news releases, holidays etc.
Good Luck with ‘The 3 Duck’s Trading System.’
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