Hello, fellow traders. 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.
Before reading the article and writing your questions in comments section, I recommend to watch this video. It’s not long, but covers biggest part of questions on the topic.
The author of the Triple Screen Strategy is Alexander Elder. 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 till this day.
The essence of the Triple Screen Strategy is to carry out a triple check for trades: at one of the stages a lot of possible positions will be eliminated. We identify long-term, mid-term and short-term trends, and enter the market only in the direction of a large “current”.
The Triple Screen Strategy uses a combination of trend indicators and oscillators.
There are no strict limitations on the indicators used. 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 personally like and which suit you.
We need to determine: long-term, mid-term and short-term trends.
Our main timeframe is the second screen.
A way larger timeframe -is the first screen (we determine the long-term trend on it)
A way smaller (relative to the main) timeframe will be the third screen
For scaling, the coefficient 5 is used. It can be approximate.
- If the main timeframe is H1, then the long-term trend will be H4, and the short-term M15.
- If the main timeframe is M5, then the long-term trend will be M30, and the short-term M1.
Define a long-term trend using a trend indicator, for example, EMA with a period of 26.
- We open trades only on a long-term trend!
- We use an oscillator to enter the market, for example, a stochastic.
There are 2 options:
- The entrance is at the momentum of the movement in our direction. We do not actually open the third chart. The option is more suitable for beginners, so as not to get confused.
- Use the third screen for more accurate entering the market according to the technical analysis. Among the pros is the possibility to put a smaller stop-loss. A more complex option for experienced traders.
- If the trend is moving up on the first screen, and the oscillator is in the oversold area on the second screen, place the BUY STOP order a few of points above the High level of the last closed candlestick on the second screen. If the order does not work, move it slightly higher than the next closed candlestick. Continue to move the order (if it did not work), until the trend on the first screen changes to bearish.
- If the trend is down on the first screen, and the oscillator is in the overbought area on the second screen, place the order SELL STOP a few of points below the Low level of the last closed candlestick on the second screen. If the order does not work, move it slightly below the next closed candlestick. We continue to move the order (if it did not work), until the trend on the first screen changes to a bullish one.
Stop Loss of the order is placed just below/above the nearest local minimum/maximum.
- We leave the position when the oscillator on the second screen enters the overbought area (exit from long trade), or the oversold area (exit from short trade).
- It is possible to apply any other criteria for the exit.
Moving the Stop Loss
We move the order in the black (we transfer the stop-loss to the opening price of the position), after reaching about half of the planned profit.
The Elder’s Triple Screen system can serve as a very good basis for building your own 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.
The application of the Triple Screen Strategy can serve as a very good filtering in combination with the methods of Price Action trading. At the output you will receive a very powerful trading system.