It’s the average of the high to low (or low to high) movement a currency pair typically travels per day averaged out over a specific period of time.
Each pair will register different range statistics primarily based around the daily trade flows (liquidity & volumes) which will be impacted by the differing influences that play out across the markets on a daily & weekly basis, which is why an average reading is plotted, thus smoothing out & aggregating the daily range figures.
The objective is to try & plot a reference that fits & reflects the current rhythm of the market without distorting or exaggerating the price movement. Too small & it only responds to short term noise, thus distorting the figures. Too large & it simply swallows & absorbs the price action without offering any realistic guidance to the current market behavior & risk profile.
3-4 months is a pretty logical compromize & will cover most price contraction/expansion periods across a typical trading quarter. Considering it’s merely a guide or reference, the simplest method of plotting it is via the ATR indicator on the daily timeframe.
Based on approx 22 trading days per month, a 3 month range would equal 60ATR (rounded down), & a 4 month range would equal 80ATR.
Therefore, using that information on today’s usd/jpy daily chart, the current 3 month average daily range is coming in at approx 43 pips. This morning during the Tokyo session price covered 38 pips from the opening days low up to the high of the day leading into the european session, where you entered your long trade.
That represented 90% of the average current range distribution.
Given that scenario, there was a high likelihood of at least a pullback to test whether or not any continued bid activity was present to aid further upside momentum. (Prices are usually inclined to pause or pull back to check participation prior to a session handover). If you were still keen at that point to trade the long side of usd/jpy you might have erred on the side of caution & checked to see how the London flows were positioned, particularly with it being a Friday leading into a long U.S bank holiday weekend.
If (as it happened) the pullback was a shallow one & you received positive assurance from your moving average on the 5 minute chart, then you could have perhaps tested the potential upside from around the low of the pullback area, thus improving your potential reward to risk ratio.
A properly placed stop loss and profit target with a reasonable risk v reward ratio might be the best tool to pick when you’re trying to deal with fake breakouts.
How about using S&R’s ? or any correlations or checking the bias…im not trying to change the system…im just trying to find out if there are any possible ways to avoid false breakout’s…
Thnx a lot for the info. At first i din’t understand much about ATR, but i have undrstood it now. Now i know where i should not enter the market as i plot the high and low using the ATR and apart from that. Is there anything else i should check with ?
I fully agree with the comments in Matt’s previous 2 posts, especially the bit about changing the underlying structure.
A solid, logical method such as this doesn’t need any more confirmatory filters or additions to enhance its benefits. The beauty of this structure is its stress free preparation & total lack of complexity. Just take the time to thoroughly test it out & use some discretion & initiative when preparing your entry, trade management & exits. Those are the parts you need to work on to ensure they fit your style & trading objectives.
I only added my view about the average range information because it stood out like a sore thumb to me when you posted up the details of your entry. I have offered my reasons why I thought your entry was maybe a little premature & I’m sure you’ll find that simple addition very practical & beneficial when analyzing your entries & exits.
I fully agreed with the directional bias you were taking, just disagreed with the timing of it.
Another loss again. I have checked with the ATR too …but dont know the reason why the price has went down…is it because of any resistance line …there was no news too …
I’ve entered long at the green line… and my stoploss was at the red line…
Your chart is difficult to see, but I’m assuming it’s eurusd right?
If so it’s probably been one of the most potentially volatile 2-3 day periods for this currency in recent times.
Why don’t you simply widen your field of view & scroll through other pairs to identify those that are displaying smoother & higher probability potential.
Try looking at nzd/jpy or even trading the euro via the yen.
You don’t have to play every day, especially not when you’ve got jerky, volatile price action like the type showing on your submitted chart.
Well, its not EURUSD, with the greek drama in the background i jus wanted to stay away from that pair for a hwile, so i shifted to NZDUSD…
here’s the picture, i’ve zommed into a bit.
So looking at your hourly frame on that pair, you have a series of lower tops backing away from a strong resistance level & price hasn’t yet broaken back above it’s most recent lower high during yesterday’s New York session at .8407
What gives you the impression this pair is displaying high probability entry potential?
You still have to use common sense when trading this strategy as it’s primarily a discretionary model.
What soultrain appears to be implying is that you’re perhaps using the structure of 3 Ducks in isolation. You really can’t do that if you want to succeed long term trading a discretionary model. It will kill you very quickly.
This isn’t a purely mechanical system. It’s a discretionary strategy with a strong, solid technical framework that guides you towards identifying high probability, lower risk trade opportunities. But it still requires you to be familiar with the background technical positioning leading into your entry & that includes being aware of events likely to directly affect & impact your trade entries & exits such as big, bad support & resistance levels.
It’s not usually very advantageous to trade directly into major support or resistance levels. Particularly those that haven’t been broken or re-tested with any kind of authority or conviction.
That hourly chart looks a little roughed up with conflicting highs & lows, bouncing underneath a solid resistance zone. Sometimes it pays to hang back a while & see how these levels & zones develop. Either that or simply take a breather & allow the price action to slip back into a more sedate rhythm.
Hi GS888, If YOU do this ONE thing EVERY time you consider a trade, you’ll become a very good PRICE ACTION trader…(drum roll please)…LOOK LEFT!!!
What I mean by that is always, always, always look at where “Price” has come from…why? [B]“Structure leaves clues”[/B] If you see that your 3Dux trade set up has given you a potential trade, LOOK LEFT before you place you entry order.
Looking at the chart you posted, I see by looking LEFT, that you have NOT cleared previous structure and that you’re trading into CHOP or stagnation. WAIT for price to clear the structure (to the left) so that it PROVES to you that it wants to go higher (or lower on a short). YOU ALWAYS want to trade into “OPEN AIR”.
That ONE very critical add on to your trading checklist will give you more trade clarity and more pips
I have understood that i did a mistake by entering at the strong resistance zone, but from your post im not able to understand what do u mean by lookin left, i mean the price was eventually goin up, so it seemed to be bullish to me, apart from the resistance zone, is there anythn else which im missin out ?
gs888 - take a peek at this NZDUSD 5 min. The BOX @ .84009 is where you went long.
First off, NEVER take a trade at a BRN (big round number), it is natural tendency for price to stall (react) psychologically.
Two. See ALL (4) higher price levels that act like hurdles UP HILL that you have to clear before you get “open air”?..that is what I mean by “looking left”. Remember, “structure leaves clues” so always pay attention to where price has come from.
Third. By taking a long trade AT a BRN of .8400 + seeing all the resistance to the LEFT, when price comes back up into that BRN of .8400, guess what? it’s now resistance and the path of least resistance is DOWN…see price action plummet.
The 3Dux HAS to be used with discretion and smarts + patience. It is a nice MTF method but you have to use it with knowledge of how the markets work naturally.
I hope my chart has helped you SEE what I mean by “looking left”
Nothing really happening on a lot of the major pair recently and the only two pairs that look decent are the JPY pairs.
Be careful during these market conditions as past winning pips could be easily parted with.
[B]Usd.Jpy[/B] – current spot price is 80.15, I would be looking for buying opportunities when my 3 ducks line up.
[B]Eur.Jpy[/B] – current spot price is 106.02, I would be looking for buying opportunities when my 3 ducks line up.
[B]Thought for Today:[/B] A great trader gets very little praise.
[B]1)[/B] If a trader has 5 winning trades in a row it was probably because the current market conditions are in-tune with their method. (Thanks market, thanks method)
[B]2)[/B] If a trader has a losing trade it was probably because the current market conditions suited their method but the probabilities on this trade didn’t follow through. (Unlucky that time method, we know it’s all about probabilities with you)
[B]3)[/B] If a trader has 5 losing trades in a row it was probably because the current market conditions are not in-tune with their method, but they were impatient and continued to trade. (Bad Trader)
[B]4)[/B] If a trader sits on their hand when the market conditions are not in-tune with their method they get a little praise. (Well done Trader)
Now you have a good reason to sit on your hands…
Chat soon,
[I][B]
Andy[/B][/I]
These are not trade recommendations. The 3 Ducks Trading System is best used as a set of guidelines with discretion in addition with your own market analysis and trading ideas. I do not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
The Captain’s method states that you brake out from the LAST high (/ low) on the 5 min chart. What you suggest makes a lot of sense, to check for older resistance points but what significance do I put on a resistance line back in 2004 for example & does it have any bearing on today’s market (assuming it is not a “BRN”) by the same token should I be “looking left” on the 1 & 4 hour charts too?
You’re right in thinking that more recent fundamental or market influencing factors carry more clout when assessing the likely potential of a s&r zone holding up to inspection, but it’s never wise to rule out dismissing history, particularly where strong previous rejection levels are concerned. The market is a creature of habit & it always pays to play the cautious card until it tells you otherwise & proves to you that it’s safe to rule out.
That way you’re covering your bases & respecting your risk.
It would certainly make sense to do so don’t you think?
Price levels that show recent evidence of rejection signify hesitancy or indecision. Once price action fails to penetrate such a level or zone it illuminates it from both sides.
Depending on the prior strength of the zone, significant amounts of offers & buy stops begin building to take advantage of the possible 2 way action anticipated to play out there next time around. EUR/USD at current levels is a classic example of this battle.
Pullback traders are positioned long into 1.3275 & 1.3325 (the high of the previous 2 weeks) from last weeks lows looking for a chance to check out the follow through buy stop activity above that dual resistance.
Offers are obviously in evidence up there too judging by the rejection of last week & the repeat performance on the approach from Monday & Tuesday.
When tackling levels such as this from the long side it pays to get in ahead of the resistance zone to reduce the risk of being whipsawed out as the battle ensues between orders offering the level & bids attempting to push through seeking the stops laying beyond the upper resistance zone.
It makes less sense & dramatically increases your risk, if you trade directly into the level on a 5 minute high/low break because you’re entering right into the eye of the (potential) storm.
If you can’t obtain a low risk entry leading into a strong support or resistance zone, then wait for the zone to break & get re-tested first before committing your order.
If you run the rule over your results trading in & out of these typical technical scenario’s you won’t be too surprised to discover your higher probability odds lay with the latter option as opposed to the former.
James…you’re understanding the “Look Left” principle but perhaps with a touch of EXTREME caution. If you look at the NZDUSD example, it is a 5min chart…not a 1H, 4H or Daily. And the (4) Arrows I drew showing previous resistance is encompassing a mere 21 pips. So not saying to go back to 2004 or any other extreme level…just the NOW. The NOW when you say to yourself, “well I have a 4h duck, 1h duck and as soon as my 5min duck lines up I’m in!!!” - NOT so fast.
Yes, in a MTF approach, get your 3 ducks in line - THEN use yer noggin and “look left”. If you look at the chart I posted, price had NOT overtaken the previous swing HIGH…on the contrary as their were (4) lower swings before it. So yes, align the ducks and then “look left”, if you have passed overhead resistance and have “open air” jump in…BUT if you see what I see on the NZDUSD 5 min chart I posted, sit on your hands until you get a GOOD trigger.
GS888 went long IN the midst of alot of overhead (and immediate) resistance…guess what, he got his feathers plucked
