(Long post) Getting the entry right when using the 3 ducks strategy
(Apologies: this is a long one.)
Hi – I was pointed at Captain Currency's 3 Ducks system a couple of years ago and dismissed it at that time as too simplistic. More fool me ! Sorry Andy :-(
However, I have recently come across it again after trawling my hard drive following the end of an extended training programme on day trading. This has left me feeling frustrated at my inability to “read the runes” of the charts correctly.
Followers of the ducks will therefore understand why, on re-visiting Andy's ebook, its simplicity appealed to me. I have tested it in a minor way with tiny stakes over the last week and had some success, but I am finding difficulty getting my head around what is perhaps the most important part of the strategy, the entry.
Andy's books says:
"The 5 min chart, our third duck is used for entries. What we are really looking for on the 5 min chart is for prices to get above the sma and move higher than the last high on the 5 min chart."
After showing an example, he goes on to say ...
We would now be looking to buy when prices move above the last high (two candles to the left with lower wicks and two candles to the right with lower wicks) on the 5 min chart.
It's this “last high” thing that I am having trouble with. When Andy says that the last high occurs when you have
“two candles to the left with lower wicks and two candles to the right with lower wicks”, must these be adjacent candles (as in the example shown in the book ) ? Because it doesn't actually happen “nicely” like that all the time !
I appreciate that you should use the 3 ducks in the context of your own philosophy, being aware where the markets are, what your own personal style is, etc, etc, etc. But even so, I have been pondering how I could find a reliable way to know that I am using the correct “high” (or “low”), I came across the idea of fractals in a thread on a forum “elsewhere”. (Ahem !)
Somebody has come up with the idea of using the “fractals” indicator available on MetaTrader. Apparently this signals “swing highs & lows”. A little googling has enabled me to get a handle on this and it seems that the definition is almost exactly the same as the one that I quoted from Andy's ebook. (Coincidence ?)
Anyway, is this a suitable tool for determining “highs & lows” for entry ?
BTW, I use Sierra Charts for replaying and practice trading and unlike MetaTrader, it does seem to have a way of configuring the fractal setup. It uses a parameter called “Maximum Length of Fractal Signals” (which it defaults to 10, but 5 is the lowest possible value and that makes sense in terms of the definitions that I've seen for fractals i.e. one high/low & two candles on either side, a total of 5).
I thought that an example would be useful, though I've not easily been able to find one ! The following charts are from EURUSD on 17th April 09. (Unfortunately, after talking about “highs”, the example is on the down side, so we are now talking about lows instead ! Sorry.)
Anyway, the other ducks
are lined up and in fact have been for some time. The 5 minute duck stepped out of line overnight, but has come back in to line around 8:50am. I'm not totally sure if that would make it a suitable “3 duck” trade, but if it is, the candle setup shown is the kind that confuses me when determining the right entry point.
I've highlighted possible “lows” since 5:20am (point 1, which represents the over-night low).
To me, point 9 seems too close, but which of the others between points 3 and 8 is the best bet ?
The “Up” & “Down” legends are from Sierra's fractal indicator, (using 5 as the value for Maximum Length of Fractal Signals). On that basis, number 6 would be the one, I suppose, but I'm still not sure. (For information, the second chart shows “what happened next”. Not a massive trade and perhaps a bit spiky, but 30 points in about as many minutes seems reasonable to me !)
So, to sum up:-
1.What's the best way of establishing the “high” or “low” to use for entry ?
2.Are Fractals a suitable way of getting a rough idea for #1 ?
If you have been, thanks for listening
Reler