CC - I know you've always maintained your system is an aid to trading decisions and not a system in its own right. But it's clear some are trading it 'as is' and without, it would seem, due diligence being carried out for current market and instrument dynamics (especially with regard to stops and targets and change of market/instrument mood).
Maybe we could kick around some basic and fundamental considerations for the benefit of those who perhaps haven't either considered them, or haven't taken this thread from post #1 where these issues were first covered. I'm happy to kick this off, but as it's your baby...(arf!).
Hello The Brambles,
To all the newbie Ducksters on this thread, as The Brambles and all the other old pros know, I use The 3 Duck's Trading System as a GUIDE in addition to my own market knowledge ie what else is happening in the markets, news, time of the day, sentiment, etc.
The 3 Duck's Trading System is not a black box, EA or auto system. For the record I hate EA's. I dont take every "signal" from the system because it may go against what im thinking. I must prefer to read and watch what is happening in the markets then flip open a chart and see what the ducks are up to. I may prefer to be buying Euro against the US Dollar, if the ducks line up on this pair im on the trade.
Stop losses and targets can also be deciced on market conditions too. If the market is a bit up and down like it has been lately then a wider stop loss may be needed. Previous daily highs or lows are always a decent area for stops and targets. Risk versus reward is not going to be as good in these conditions as it would be in a nice trending market.
In a trending market you can be a bit more agressive with your stop loss placement (30 pip minimum) and in these market conditions you shoul be nailing your risk versus reward ratio.
The Brambles, sure start the ball rolling with your views on current basics and fundamental considerations.
Mon Capitaine,
By fundamentals, I meant the basics/fundamentals of setting reasonable stoploss and target levels. We could of course get into all that excellent X-Market stuff and go into the inter-relationship of Bonds, Bills, Gold, Oil, Stocks, FX, Interest Rates, Other Commodities, which would be extremely valid and has been touched on in various other threads before. But it doesn’t really belong in this one. And all that boring hard grunt work of X-Market Analysis tends to go down like a lead balloon with the majority. And anyway, X-Market Analysis is primarily a longer TF tool and while the concepts work to a largely similar extent in the shorter TFs, their shorter TF momentums and effects are less bankable due to their contention with the inherent noise of the shorter TFs. So, to be clear, I was only talking about stops and targets.
The thing is, whatever I say in relation to this topic is going to be just my take on things and convey purely my current style of trading FX. It is in no way to be taken as a one size fits all, at all, at all. It works for me because it’s been tailored that way. If it’s useful to others fine, but don’t assume you’ll need to use it or even want to use it.
I am also a bit of a fraud holding forth in this thread as I don’t use this method (not directly, anyway).
That said, lets look at GBPJPY yesterday (Weds June 18) which is when I started writing this. I don’t scalp. Can’t afford to. I tend to trade the longer TFs when I have a longer TF trend. When there is no obvious longer TF trend and there is sufficient volatility to justify my exposure, I’ll trade the range on an obviously much shorter TF. The benefits of range plays is that they give you reasonably solid and obvious (which means I don’t need to explain further here) boundaries for target and stop setting. Which means you can potentially go in on much bigger size than when factoring a longer term trend play. I’m focussing on range as it was a rangey day, most of the time in most majors. Totally useless trying to use 3 Ducks in this type of situation. And that’s probably the first and most important point, don’t waste your time looking for agreement over 3 TFs when the lowest TF is ranging. The longer the lower TF ranges, the more the higher TFs price line will tend toward any MA in that TF. 3 Ducks is looking for nice clear punching through or bouncing off MAs – not gentle gravitation toward. So point 1, use 3 Ducks as written – it’s for strongly trending instruments across multiple TFs, wait for the trades to present themselves – don’t 2nd guess or force them. If it’s ranging on the 5min and you want to trade 3 Ducks – move on to the next pair…
3 Ducks is forcing you to trade with the longer TF trend. Always a good move. It’s also getting you to appreciate price action. But it’s not a proxy for common sense. It is ‘a common sense approach to price observation’ from the words of the master himself. Use in combination with local S&R, and as ampro also suggests you could check Peaks & Troughs (cycles) of the pair. Each pair has it’s own wake/sleep times – eg when London is closed or Friday evening is not the best time to party with FX. Trade the appropriate sessions for your pair. Use whatever tools you have in addition to 3 Ducks.
3 Ducks keeps you the right side (most of the time) of the direction you should be considering and gets you in at a pretty good place (most of the time).
The thing is, 3 Ducks assists (for those with the wit to get it) in recognising how it all works at a more basic level in the markets and more importantly, what works better. Hopefully, some will note the performance of 3 Ducks when the price is crossing all 3 TFs at the same time compared with performance when only the lower TF is crossing and the 2 higher TFs have the price already on that same side.
Equally important will be the realisation of what 3 Ducks is leading them to look at and what it ‘means’. It is very basic and often overlooked for that very reason, which is where many will lose the most important learning aspect of it.
If you just trade it ‘as is’ you’ll not do as well as those who use it in a combination with other factors and intelligence and use it for further research into what it represents at a basic level of market mechanics.