The book “Trading for a Living”. Even if you haven’t read it, you must have heard of it! The author of this book, Alexander Elder, truly achieved self-realization in trading. His “Triple Screen Trading System” is also highly praised by many investors.
Some people say that if you master Alexander’s Triple Screen trading system, it’s almost impossible to make a wrong direction. Is it so magical?
Now, I will share this trading strategy with you.
What’s the Triple Screen trading system.
Alexander Elder’s Triple Screen Trading System combines trend-tracking and oscillation analysis tools. It can be used in trending and oscillating market conditions and can effectively avoid wrong signals. Moreover, it can be applied to trading markets such as stocks, foreign exchange, commodities, and futures.
The triple screen, simply put, refers to a three-step process for determining position establishment:
Step 1: Analyze market trends and establish trading biases.
Step 2: Use technical indicators to identify price pullbacks.
Step 3: Use short-term breakouts to find entry opportunities.
This trading strategy requires switching between different time periods. Switching different time periods is equivalent to switching three different screens. Therefore, it is also called Alexander Elder’s Triple Screen trading strategy.
The first step uses a larger time period, and then decreases sequentially. The relationship of the time period reduction can be a coefficient of 4 times, 5 times or 6 times. Commonly used cycle combinations are:
For long-term trends, use (weekly – daily – 4 hours).
For medium-term trends, use (daily – 4 hours – 1 hour).
For short-term trends, use (4 hours – 1 hour – 15 minutes).
What is the function of each screen?
The analysis period of the first screen should be longer than your trading time period. For example, if you trade using daily charts, then for the first screen, you can use weekly charts for analysis.
The main function of the first screen is to analyze market trends and establish trading biases. If the market is in an uptrend, then we only look for long signals. If the market is in a downtrend, we only look for short signals. This step helps us filter out some trading signals.
For the second screen, the time period needs to be reduced. If the first screen uses weekly charts, then this screen can use daily charts. Oscillation indicators are needed to identify price pullbacks and find better trading opportunities.
For example, if the first screen determines that the weekly market trend is upward, on this screen we can use oscillation indicators to identify the rising position after the price pullback to determine when to go long. If the weekly trend is downward, on this screen, use oscillation indicators to identify the falling position after the price rebound to determine when to go short.
The third screen needs to further reduce the time period, such as using a 4-hour chart.
The main function of this screen is to execute entries. When the trend of the third screen is consistent with that of the first screen, you can enter the trade. Oscillation indicators are also often used to identify price breakouts in advance.
Example of Triple Screen trading system.
First screen, in the daily chart of GBP/USD, use 200MA to analyze the long-term trend. In the later stage, the price is above 200MA, confirming the upward market trend.
Second screen, in the 4-hour chart of GBP/USD, use the MACD indicator to find the price pullback range. The market price tests 200MA. When the MACD indicator turns from negative bars to positive bars, the market price begins to rebound.
Third screen, in the 1-hour chart of GBP/USD, use the KST indicator to judge the entry opportunity. When the KST indicator breaks through the 0 line, you can enter a long position. But when the market price is above 200MA, the trend of the third screen is the same as that of the first screen, and entering the market is more stable.
The KST indicator, namely the Know Sure Thing indicator, is often used in combination with double moving averages and is suitable for medium and long-term band market conditions.
The above example is for a long signal. The usage is the same in a downtrend.
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