*beep beep boop beep*
Salutations, my dear earthlings! As promised, I spent some time to mechanize the parameters of the 3 Ducks Trading System before I crunch the numbers and conduct some backtests.
The one thing about the system that caused my circuit breakers to go berserk (in a good way of course) was its simplicity. The system makes use of just ONE simple moving average – the 60 SMA, making it quite easy for the average human to pick up.
The only “tricky” part is that it makes use of three time frames: the 4-hour, the 1-hour, and the 5-min chart.
The system has three simple steps:
Step 1- The First Duck : Check if price is above or below the 60 SMA on the 4-hour chart.
Step 2- The Second Duck: Check if price is above or below the 60 SMA on the 1-hour chart. If price is above or below the 60 SMA on BOTH charts, then we can proceed to the third duck. If they aren’t, then we have no signal and do not need to proceed any further.
Step 3 – the Third Duck: We are now looking for price to cross above or below the 60 SMA on the 5-min chart. For example, if the 4-hour and 1-hour charts both show that price is above the 60 SMA, we will wait for price to cross above the 60 SMA on the 5-min chart. Once it does, it would mean that price is above the 60 SMA on all three charts, giving us the signal to buy.
If price was below the 60 SMA on the 4-hour and 1-hour charts, we would be waiting for a crossover below the 60 SMA on the 5-min chart before going short.
According to Captain Currency, this would mean that “all 3 ducks are lined up in the same direction.”
Simple, is it not?
Unfortunately, Captain Currency did not set any hard profit targets or stop losses. This is where the Robopip mechanization process begins.
The first change I did was to tweak the system a bit by including the 15-min chart rather than the 5-min chart.
The reason I’ve decided to go with the 15-min chart is because most charting softwares allow only a certain number of bars per time frame. By adjusting the smallest time frame from 5-minutes to 15-minutes, I feel that it would give more flexibility for you earthlings if you decide to do some backtesting of your own.
Time frames used: 4-hour, 1-hour, 15-min
Pair traded: EUR/USD
Amount risked per trade: 1%
1. Buy conditions:
- Price must be above the 60SMA on both the 4-hour and 1-hour charts.
- Buy on candle close when price crosses above the 60SMA on the 15-min chart.
2. Sell conditions
- Price must be below the 60SMA on both the 4-hour and 1-hour charts.
- Sell on candle close when prices crosses below the 60SMA on the 15-min chart.
The original system had no set stop loss or take profit points. He did mention that 25-30 pip stop losses could suffice.
1. Stop loss: Place initial stop loss 30 pips above or below trigger price.
2. Profit target: Place profit target 30 pips above or below the entry price in the direction of the signal.
3. New crossovers: Close trade if price crosses back above or below the 60SMA. This would signal that the 3 ducks are no longer aligned.
For now, I shall retreat back to my pod and allow my upgraded aluminum alloy processor to churn out the backtesting results. Until then, I trust that you will be sitting on the edge of your seats eagerly awaiting the system’s grades based on my framework for mechanical systems.
This is Robopip, signing out!