The 3 Ducks trading strategy is a low risk, high probability, swing trading strategy for FOREX traders, whether a beginner or a seasoned trader. This well trodden and proven trading strategy is one that I have used and had a lot of success with over the years.
If you’re a beginner trader, forget trading on low 5 and 15 minute time frames. This trading strategy uses a yearly, monthly and weekly trend to confirm the direction.
Im sure you’ve heard of ‘getting your ducks in a row’, in this case the 3 ducks refer to the price in relation to the 3 moving averages which are used to confirm the trend for long, medium and a shorter time frame – all 3 ducks must swimming in the same direction. The three moving averages are the 55sma weekly , 21sma daily and 34sma 4 hourly.
This 3 Ducks example shows a long buy trade on the EURGBP forex pair. The charts below show the 3 time frames you need to look at. These are the steps:
Weekly chart: The weekly chart shows the yearly trend. The long term trend is up when the price is above the weekly 55 SMA, and a down trend when the price is below the 55 SMA. Check that the ‘first duck’ is inline and that the price is above the 55 SMA (dark blue line), for a possible long trade, or below for a short trade.
In this example, it’s showing an up trend. You can look back to the left hand side of the chart and see that the trend is clearly up, and not a sideways price action. Now on to step 2…
Daily chart: The daily chart shows the medium term monthly trend. Check that the ‘second duck’ is inline and if the price is above the 21SMA (light blue line), it shows that the trend is up. You should only take long trades when the long term trend is up (as in step 1) and when the medium trend is also up. If you look at the chart, you can see the price moves above and closes above the 21SMA on the 3rd of october, at the end of the day. Price stays above the 21SMA on the 4th October.
Now move on to step 3…
4 Hourly chart: The 4 hourly chart shows the daily trend. Check that the ‘third duck’ is inline and a confirmation of an up trend or down trend, when the candle touches and closes above or below the 34SMA.
Note that on Oct 29th, the price touched and closed above the 34SMA, denoting an uptrend on the short timeframe, but this is not a valid entrys, as on the medium time frame (Daily chart), the price had not yet closed above the 21SMA.
*If the 4 hourly chart is showing an uptrend, Step 1 and step 2 must also signify an uptrend for a valid trade entry. In this example, it happens on the 3rd of October. This is when all 3 ducks are in a row. We now have a possible entry…
There are a couple of entry strategies and one of the two entry criteria must be present.
*Note: I have included the bollinger band indicator on the 4 hourly chart to show you that we are entering a long trade, even when price is at the top of it’s bollinger band with an over sold stochastic.
1. On close of the candle.
This entry will result in more trades, but if used with a suitable stop strategy, can be more profitable. The chart above shows the entry on the close of the candle.
2. On break of the high/low candle.
This entry waits for confirmation and will result in less trades than option (1). The chart above shows the entry on the next green candle that immediately breaks the price of the close of the previous ‘decision’ candle.
There are a few stop strategies for this trade.
- On break of the 34SMA, shown by STOP 2 on the chart.
- Place your stop just below the initial candle low on the 4 hourly chart, shown by STOP 1 on the chart.
- An alternative stop strategy could be to use the parabolic SAR and wait for the price to cross below the line.
Use the risk reward ratio system to determine your exit point.
- Use a trailing stop with no target price.
- Stop and take profits after a set number of Pips. You may opt for 25 pips and take half your profit off the table, and move your stop to break even.
- Exit on the break of a previous support or resistance level.
- Use an oscillator indicator like RSI to exit when over bought or over sold conditions.
If a recent major economic data announcement has resulted in upward or downward momentum, this maybe reason to stay in the trade for longer.