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TECHNICAL ANALYSIS

TECHNICAL ANALYSIS

“Three Screens Are Better Than One”

How to use Dr. Alexander Elder’s Triple Screen Trading Method

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There are a number of wonderful “trading systems” out there, but they are blended in with the “holy grails” and the pay-for-play systems that are nothing more than a couple of random, simultaneous confirmations on a chart. Today, I am going to explain to you the single system that played the foundation for my early success and progress.

When I first started into this world of forex, I bought any and every book I came across that claimed to be able to teach me something about making money in this market. Some were very basic, some taught me fundamentals to trading that I still use today, and some were a waste of money. I can tell you right now that anything from Dr. Alexander Elder is worth its weight in gold if you apply it correctly; mold it to your personality type, make it your own. So without further ado and from the wonderful mind of Dr. Alexander Elder, I present to you; The Triple Screen Trading System.

The Triple Screen Trading Method

The Triple Screen Trading Method is very simple and actually only requires one screen. The basics of this strategy is very sound in the “fundamentals” of trading and every trader should make its habit to remember the lessons that this strategy teaches. It is a strategy that requires no fundamental analysis, although I do suggest that you supplement your technical analysis with some fundamental research in order to maintain a healthy, balance trading diet.

First, you need to determine what time frame you want to trade on. This can be a set feature for your strategy, or it can be determined on a trade-by-trade basis. For example, you may be scalper who monitors every trade on the 15 minute timeframe, you may hold longer-term positions but wish to supplement with intraday trades, or you may simply only trade a higher time frame such as the daily charts. This is all fine and this strategy is still applicable to your situation. For this example, lets pretend that you don’t have a set timeframe that you like to trade, but you’re eyeballing a setup on the daily chart. We’ll call the daily chart your “trade management chart”; It’s where you’ll constantly pivot from before making any decision.

You need to choose three indicators to apply to the daily chart and two other charts within the same currency pair. The indicators that are suggested are those of the oscillating type. My three choices are the Stochastic, Stochastic (yes, I know it’s the same…we’ll get to that in a moment), and MACD. You can also use the Stochastic, CCI, RSI, or any number of oscillating indicators. You can also use the same indicator on all three screens, but the indicator on the highest time frame should be able to determine the direction and strength of the current trend on that chart.

The Fives Times Rule

Of the two other charts that you use, one needs to be a higher timeframe and one should be a lower timeframe. Dr. Elder has a rule here for switching time frames. It is what I like to call (or maybe I read it somewhere) The Fives Times Rule. For this rule, anytime you switch timeframes, you divide by 5 to find the best lower timeframe to use, and you multiply your current timeframe by 5 to find the best higher timeframe to use. In our example, since we are using the daily chart as our trade management chart, then the lower time frame would be the 4 hour chart (4H) since 24 divided by 5 equals 4.8 and the 4 hour chart is the closest available chart on most platforms. The higher timeframe we would use for this trade is the week chart since one day times 5 equals 5. Anytime you’re using this rule or strategy and you don’t have a chart equal to the multiple of 5, just use the closest chart available. This is a rule that is helpful outside of this strategy so that you aren’t too far from or too close to your “trade management chart”. Now that we know the basic setup of the charts and indicators, let me explain their purpose.

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