Triple Screen Trading System by Dr. Alexander Elder

The Triple Screen Trading System is a method developed by Dr. Alexander Elder, a trader and psychiatrist, in his book "Trading for a Living." This system is designed to help traders resolve conflicts between trend-following indicators and oscillators and to increase the accuracy of trading signals through the use of multiple time frames. Below, we will explain the basic concepts of this system, how it works, and provide an example of its application in trading.

1. Basic Concept of the Triple Screen System

What is the Triple Screen System? The Triple Screen System uses three different time frames to identify more accurate trading opportunities. This method divides market analysis into three screens, each focusing on different aspects of price movement.

Goals of the Triple Screen System:

• Identify Long-Term Trend: The first screen to determine the long-term trend direction.
• Find Entry Points: The second screen to find trading signals based on a smaller time frame analysis.
• Filter Signals for Accuracy: The third screen to validate trading signals and determine the optimal entry point.

Time Frames in the Triple Screen System:

• First Screen (Long-Term Time Frame): The highest time frame to determine the main trend.
• Second Screen (Intermediate Time Frame): The middle time frame to search for trading signals.
• Third Screen (Short-Term Time Frame): The lowest time frame to confirm trading signals and determine the entry point.

Example Time Frames:

Time Frame	Description
Long-Term	Weekly
Intermediate	Daily
Short-Term	4H or 1H

2. Steps to Use the Triple Screen System

Step 1: Analyze the First Screen Goal: Determine the long-term trend.

• Main Indicator: MACD, EMA, or SMA on a higher time frame (e.g., Weekly).
• Analysis: Determine the main trend direction based on indicators like MACD or EMA.

Example First Screen Analysis: If the MACD shows a bullish divergence or the EMA 13 on the Weekly chart shows the price above the EMA, then the market is in a bullish condition.

Step 2: Analyze the Second Screen Goal: Look for trading signals based on the intermediate time frame analysis.

• Main Indicator: Stochastic, RSI, or Moving Averages on the intermediate time frame (e.g., Daily).
• Analysis: Identify trading signals in line with the trend direction from the First Screen.

Example Second Screen Analysis: If the trend is bullish on the Weekly, look for buy signals on the Daily chart like EMA crossover or RSI in the oversold area.

Step 3: Analyze the Third Screen Goal: Confirm signals and determine the entry point.

• Main Indicator: Candlestick Patterns, Support/Resistance Levels, or Divergence on the smaller time frame (e.g., 4H).
• Analysis: Validate the trading signals from the Second Screen by looking for candlestick patterns or price levels indicating a potential entry.

Example Third Screen Analysis: Look for bullish candlestick patterns like bullish engulfing on the 4H if the buy signal is already valid on the Daily.

3. Example Trading Strategy Using the Triple Screen System

Example Case: You want to trade the EUR/USD currency pair using the Triple Screen approach.

Step 1: Analyze the First Screen (Weekly)

• Indicator: EMA 13
• Result: Price is above EMA 13, indicating a bullish trend.

Step 2: Analyze the Second Screen (Daily)

• Indicator: Stochastic
• Result: Stochastic shows oversold conditions and gives a buy signal.

Step 3: Analyze the Third Screen (4H)

• Indicator: Support/Resistance Levels
• Result: Price forms a bullish pattern like a bullish engulfing or approaches a support level.

Entry and Exit Strategy:

Action	Detail
Entry	Buy at 1.3450 (example support level)
Stop Loss	30 pips below the support level
Take Profit	50-100 pips above the entry level

4. Detailed Explanation of the Indicators Used

1. MACD (Moving Average Convergence Divergence)
• Function: Identifies momentum changes and trend direction.
• How to Read: If the MACD line crosses above the Signal line from below, it's a buy signal; if it crosses below from above, it's a sell signal.
2. EMA (Exponential Moving Average)
• Function: Smooths price movements to show clearer trends.
• How to Read: EMA above price indicates a bullish trend, while EMA below price indicates a bearish trend.
3. Stochastic Oscillator
• Function: Measures price momentum and determines overbought or oversold conditions.
• How to Read: Stochastic above 80 is considered overbought (sell), below 20 is considered oversold (buy).
4. RSI (Relative Strength Index)
• Function: Measures trend strength and overbought/oversold conditions.
• How to Read: RSI above 70 is considered overbought, below 30 is considered oversold.

5. Tips for Success with the Triple Screen System

1. Use Consistent Time Frames
• Ensure: Time frames used are consistent with a multiplier of 5 to 6.
2. Combine with Fundamental Analysis
• Add: Economic news and fundamental reports to support trading decisions.
3. Discipline in Risk Management
• Set: Stop Loss and Take Profit carefully according to the analysis.
4. Practice and Evaluate
• Try: Practice with a demo account and regularly evaluate trading results.

The Triple Screen System is a comprehensive and systematic trading method, allowing traders to manage conflicts between various indicators and time frames. By following these steps, you can make more informed trading decisions and increase your chances of success in forex trading.

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