Sunday, November 11, 2012

Forex Trading: The Three Ducks Strategy

Forex traders capitalize on the fluctuating values of currencies in different countries to make a profit. There are two possible outcomes for Forex traders. They either make a profit, or they lose money. To increase your chances of becoming successful, you need to be careful in choosing your tools. You need to research on different trading styles. You will find a lot of online resources on this topic. Try out the Websites that offer you free Forex trading platforms to practice on. Follow their instructional models to get an idea of the fundamental principles.

The very basic rule of foreign exchange trading is never to rely solely on price for your calculations. To avoid having to do guesswork, you can try the 'three ducks' strategy. This strategy helps you to determine the ascending and descending motion on Forex and to make the appropriate entries into the market. It is actually more effective in times when prices are moving in a specific direction.

The three ducks strategy makes use of three provisional date ranges: 4-hour (H4), hour (H1) and 5-minute (M5). We will focus on only one indicator forex, and that is the 60 SMA, which means simple moving averages with a period of 60.

On the first duck, go over the chart presenting the 4-hour interval. Your goal is to pinpoint a situation where the 4-hour prices are below 60 SMA.

The second duck refers to the H1 interval. Find out if the H1 confirms the information you got from H4 concerning the price schedule. If the current price on this chart is also below the 60 SMA, then you can go to the next duck. However, if the H1 presents a current price contrary to what you got in your H4 reading, then you must not proceed to the next duck.

For illustrative purposes, we would take the situation to have similar H4 and H1 trends, that is, in both charts, the current price is below the 60 SMA. So, we will move to the last duck, which is the 5-minute pricing schedule. We will wait for the price to cross the rolling average of 60 SMA from top to bottom. The moment you see this happen, then you know that it is time to sell. All the three ducks are facing the same direction.

There are some stop-loss strategies you can take if you're following the three ducks system. For short-term traders, align your stop loss insurance at a maximum 5-minute or hourly price schedule. If you are a medium position trader, you can have your stop-loss insurance positioned at the last maximum 4-hour price schedule. A fixed stop-loss insurance between 25 to 30 points can be used when you enter the market.

The Forex trading three ducks strategy is a simple and quick way to determine whether to buy or sell. It is based on the principle of following the general currency trend. It is frequently applied to the euro-US dollar and the British pound-US dollar currency pairs, although it is also applicable to other pairs. If you're trading euro to US dollar, then follow the normal European or American trading session schedules to get the best trade.

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