Triple screen trading system: Triple Screen trading strategy by Alexander Elder
Each screen is the price chart of one and the same instrument on a certain timeframe, with additional indicator signals. The screens are analyzed from the longer timeframe to the shorter. The point is to determine the trend on a large timeframe by using the trend indicator and to find the entry point using an oscillator on the main scale. Therefore, you can apply trend indicators and oscillators which you like and which suit you. The third screen is additional; it helps choose the moment for opening a position.
For example, if we are looking for bullish entry points in a daily chart used as our intermediate screen, we would use a trailing buy stop one point above the previous day’s high. The first step is to identify short term reversals that are exhausted or finished. It would be a contrarian movement from the long-term trend or a smaller trend that goes in the opposite direction of the dominant one. Let us use a triple screen in Forex trading with the EUR/USD currency pair as an example.
Triple Screen trading strategy
In dividing monthly charts into weekly charts, there are 4.5 weeks to a month. Moving from weekly charts to daily charts, there are exactly five trading days per week. Progressing one level further, from daily to hourly charts, there are between five to six hours on a trading day.
The second screen works with an oscillator, for example the stochastic oscillator indicator, which helps us to identify turning points and entry areas. Every time that a pullback or a retracement occurs, it will give us an area to be ready to place our position. This means that a stock price will most probably remain on a past trend rather than fluctuate randomly. The majority of technical trading strategies work with this theory. If the order does not work, move it slightly below the next closed candlestick. We continue to move the order , until the trend on the first screen changes to a bullish one.
This in return will help us spot good times to execute your trades. The Elder trading system uses oscillators to identify these price movements against the tide. The first screen starts with higher degree time frames and subsequently we downgrade our time frames lower as we progress with the 3 screens. The knowledge and experience he has acquired constitute his own approach to analyzing assets, which he is happy to share with the listeners of RoboForex webinars.
Thus, we now have the confirmation from two indicators that our market interpretation is very likely correct and our strategy has a high chance of being successful. Beginner traders often look for a magic tool – a single indicator that would help them make big profits. They may get lucky for a while, but eventually, the magic disappears. When losses kick in, they tend to think that the reason for that is the unlucky indicator. Mauricio is a financial journalist and trader with over ten years of experience in stocks, forex, commodities, and cryptocurrencies. He has a B.A and M.A in Journalism and studies in Economics from the Autonomous University of Barcelona.
Triple Screen Trading System – Part 1
For example, trend-following indicators perform well only when the market is trading, and tend to give false signals when the market is range-bound. The Alexander Elder trading strategy is also known as the Triple Screen trading system combines oscillators with trend-following tools in order to refine the performance of both. This is a practical guide to the Alexander Elder trading system that will teach you how to trade for a living. In this article, we will examine the medium-term indicator trading strategy “Three Moving Averages + MACD”. We will learn how to install these indicators on the chart and use them in trading.
According to the author, the third screen does not require a separate chart analysis or indicator signals. This is the method of entering the trade with a Trailing Stop order. IF the mid-term trend is going down, we can expect the Stochastic to give a signal to buy, when the indicator lines %K and %D will cross in the oversold area (0% to 20%). And vice versa, if the mid-term trend is moving upwards, we wait for a signal from the Stochastic to sell, when %K and %D cross in the overbought area (80% to 100%). In essence, the Triple Screen strategy is a filter for picking out trades along with the main trend after a correction, the classics of tech analysis.
He is the inventor of the FXStreet Currency Forecast Poll Sentiment tool. Traders like to have different visions of what is happening in the market. They use bigger timeframes to identify dominant trends, and shorter windows to select entry points. In the third screen, you should ideally look for breakouts in the direction of the dominant trend. Elder uses a technique of trailing stops to determine specific entry points.
The third screen works as an identification for the exact price for entry points. In the original system, it works with lows and highs that work as support and resistance. New versions typically add other indicators but using the naked eye to spot price action here is a completely acceptable method.
For instance, in the Moving Average Convergence Divergence , when the momentum is above the line, there are more buyers, and when the indicator is below the line, there are more sellers. The entrance is at the momentum of the movement in our direction. The option is more suitable for beginners, so as not to get confused.
Keep an eye on fundamental data and pay attention to market sentiment, too. The theory says that if the market retakes its uptrend and hits your stop, your long position will be activated. However, if the market goes against you, then your stop will be deactivated.
However, since Alexander Elder doesn’t provide rigid rules for entry and exit, it’s time to reveal the Ace from our sleeve. For timing the market with great results, we’re going to use the Know Sure Thing Indicator. For this example, we’re going to use as the first screen the daily chart.
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The strategy became known to a wide range of traders in 1986 and, since then, has never ceased to be popular and, in one or another variation, is used by many traders to this day. Beginners on Forex often ask about more than known Triple Screen Strategy by Alexander Elder, which is mentioned in the book “How to play and win at the stock exchange“. At the request of the readers, a video lesson has been recorded where this trading system was dismantled and considered in its most classic version. Using a factor of 4 will require us to downgrade our charts to the 8-hours time frame. As you can probably tell, the Alex Elder trading rules involve the use of multi-timeframe analysis. The second Screen applies technical indicators to identify retracements against the trading bias established earlier.
Now, you have a dominant trend identified and have identified the exhaustion of a reversal against that — the time has arrived to try to determine a precise entry point. Once we have identified the trend’s direction, we then switch to watching the second screen. This chart will help us identify the short-term situation and know when the dominant trend is ready to resume its run after a pause. You can become wealthy if it is done correctly, but you can also experience significant losses.
On the same note, oscillators work when the market is range-bound, and tend to give false signals when the market is trading. A system trader is an investor who has developed his or her personal trading system and follows it with all consequences. This signal will appear when the stochastic leaves the overbought or oversold areas and returns to more median values in the center of its range. Resistance refers to a level that the price action of an asset has difficulty rising above over a specific period of time. The Relative Strength Index is a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions.
The Elder’s Triple Screen system can serve as a very good basis for building your trading strategy on Forex. The main thing that it is worth taking from it is the verification of transactions in several stages, with following only a long-term trend. It will be of little profit to apply three screens in a “bare” form, with only one indicator on each chart, since forex is a complex market where a thoughtful approach is required. Therefore, this strategy in its classic form requires additional filtering.
It confirms the dominant trend that the asset is developing and the direction your position will need to be taken in. Stock and currency prices in the most random price movements will follow a trend despite the time, day, or date. It is based on common sense, and the most ignorant of investors is not going to pay $1000 for an $800 stock, and vice versa. This means that the markets’ prevailing rates will continue with minor fluctuations according to demand and supply of shares in the market. Pipbear.com is a blog website dedicated to financial markets and online trading. Please note that trading, especially margin trading contains high risks of losing a deposit.