Triple Screen Trading System: The Alexander Elder Way Of Trading

The best buying opportunities occur when a rising market makes a briefer decline; the best shorting opportunities are indicated when a falling market rallies briefly. When the monthly trend is upward, weekly declines represent buying opportunities. Hourly rallies provide opportunities to short when the daily trend is downward.

This seventy-minute webinar comprehensively focuses on helping the viewer understand all the multiple aspects of a portfolio strategy that targets investing through live trading. The presentation covers how investors have made money through the triple screen trading system and why it is safe to invest in the market as the stock markets move towards recovery and growth. On the M15 chart of Platinum, we see in detail the wave that was indicated as an entry area on the previous chart. We just want to reconfirm now that there will be no sudden downward reversal, that would invalidate our market correction assumption.

Triple Screen Trading System – Part 1

First, you should analyze the long-term time frame, which is a level above the intermediate time frame. The long-term time frame is the first screen from the triple-screen system. If your main time frame is a daily chart, you must get the 5-day time frame and start to analyze the weekly time frame too.

The indicator is designed by Dr. Elder based on the bullish and bearish power in the market. The thing is, the smaller the time frame is, the more extreme the price movement is. Therefore, signals in small time frames are https://investmentsanalysis.info/ usually very temporary and can’t be regarded as the general outlook for the price movement. The extremely complicated and unpredictable market conditions are what causes the conflict between different types of indicators.

Step 2

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. In this review, we will discuss a trading system called Triple Screen, designed by a popular trader and author Alexander Elder.

• But it is important to know that a trend really depends on which timeframe you are looking at.
• They may find one that helps them make profits but as soon as the losses come in, they look for another indicator.
• Similarly, for ranging markets, oscillators may work best to spot overbought and oversold conditions, but when the market comes in the trend, they could show flaws.
• Moreover, none of them is designed to correlate with the other indicators.
• We find a long-term trend on the first screen, then the mid-term trend after a correction, and then find an entry point on the third screen (the shortest timeframe).
• If the first screen used the daily chart, the next in line time frame is the 4-hour chart.

Then, it uses previous highs/lows or support and resistance levels in a lower timeframe to know the exact price level for your trade entry. The triple screen trading system utilises multiple technical indicators as a tool to eliminate contradictory trading signals. A trade setup that passes all three tests has the best chance to end up being a success. And, for this purpose, the 200-day moving average, which is the standard measurement of bullish and bearish trends, will be our trend filter.

The Ultimate Guide to Understanding Forex Market Analysis: Fundamentals vs Technicals

For a buy order, the exit stop loss is gradually moved upwards as the market rises. With each buy signal triple screen creates, we accumulate the entire position up to a pre-defined risk limit. The time to buy in the triple screen is when a bull trend has just undergone a correction and is beginning to turn up again. To identify the entries Elder’s original system used a combination of MACD and the Force Index, which are types of momentum oscillators. In practice though there are a variety of other indicators that will do the same job, and work equally well or better. This means that the period of each chart reduces by a factor of 3, 4 or 5 from the longest duration chart to the shortest duration chart.

This is one of the most famous strategies suitable for all financial markets. 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.

SETUP

However, if the market condition changes into the sideways (ranging) condition, the trend indicator might be difficult to read and this is usually when the oscillator would be more accurate. For this example, we’re going to use as the first screen the daily chart. This is the method used by Dr. Alexander Elder to select his time frames.

For example, in a market uptrend, trend-following indicators rise and issue “buy” signals while oscillators suggest that the market is overbought and issue “sell” signals. In downtrends, trend-following indicators suggest selling short, but oscillators become oversold and issue signals to buy. In a market moving strongly higher or lower, trend-following indicators are ideal, but they are prone to rapid and abrupt changes when markets trade in ranges. Within trading ranges, oscillators are the best choice, but when the markets begin to follow a trend, oscillators issue premature signals.

This way risk is spread and the system won’t collapse when one or two trades end up going the wrong way, which they surely will. The strategy only buys or sells when the signals between different screens at different timeframes Best tobacco stocks are in agreement. Accordingly, the stock gave a correction and the stochastic travelled all the way to oversold zone. The indicator is invented by Larry Williams, a commodity trader who also deals in the forex and stock market.

Also, it can be set manually when a bearish divergence happens in the main time frame (daily). The signal shows that the upcoming trend is changing from bullish to bearish. There are many ways to trade Alexander Elder’s triple screen trading strategy. The backtest we did in this article is just one example of how you can do it. With data driven strategies you can twist the trading rules to whatever you prefer.

What’s the Statistic on Successful Forex Traders

If the calculation of the number of trend-following indicators is greater than the number of oscillators used, then the result will naturally be skewed toward a trend-following result, and vice versa. 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.

• For instance, the trend may be up on the daily chart, but when you look at a four-hour chart, it may be down.
• We must keep in our mind that all the three stages must positively allow the stocks to get ahead.
• Instead, they are meant to be used in combinations, while complementing other indicators, even in situations when they contradict each other.
• In this review, we will discuss a trading system called Triple Screen, designed by a popular trader and author Alexander Elder.
• If the long range chart is the weekly, we divide by 5 to get the tactical chart, then by 5 again to for the executional chart.

Elder compared the mid-term trend with a wave rolling against the main stream. The RSI is a good tool, giving a fairly precise indication of the market strength and the moments where it is safe to open a position. As we are planning to buy on a correction rising trend, we will try to catch the moment to open a long position. On the H1 chart of Platinum, we see that it crossed the oversold level. Thus, we understand that the bullish push of the market is pretty strong. Therefore, we proceed to the third screen to pick the level to open longs.

The Argument for Various Trading Methods

So, the Triple Screen trading system dictates that you consider three trend lengths — in line with the Dow theory. When it identifies the direction of the tide, this is the only direction you are expected to follow in the second chart. Therefore, if your trend indicator signals that the price action is trading in an uptrend, you can only open a long position. The triple screen system combines the use of trend-following indicators with oscillators to cover all bases of technical analysis. This is because trend-following indicators work best during trending markets and perform poorly during range-bound markets, while the opposite applies to oscillators.