The Triple Screen Trading System is a trading method popularized by Alexander Elder, author of Trading for a Living.
Here we are not going to explain the exact and specific method of Elder’s because for that we believe the reader should read the book. What we are going to do is give you the basic ideas of it, so that you can adapt and create your own method.
The Triple Screen Trading System takes into consideration three temporal windows — long, mid and short term.
In order to use them, you have to decide which temporal period is good for you and apply a factor of five (more or less) to get the other time frames. For example, if you take daily charts, as mid-term, you should take five-day charts for long terms (equal to weekly charts since stock works five days from Monday to Friday) and five hour charts for the short-term.
The main idea is that you never should go against the main trend which you can check in long-term charts.
So the first thing you need to do is get weekly charts and check the main trend of the stock that interests you. In order to check the trend, you can use a moving average of the price, or you can use the MACD indicator.
Now you know if your stock is in an uptrend, lateral, or downtrend. You should only buy stocks in uptrend.
If it is, it is time to look at mid-term charts (daily charts). Now you want to find a good point of entry, so you will wait until there is a correction of the main trend. To know when a correction is giving you a good entry point, you can use trend lines, supports, or some indicators like the stochastic or the RSI.
When you see a stock price that is in a main uptrend, but in a temporal oversold position, because of a correction, you could think about buying buy it. Logic says it is more likely to go up and then go down, but remember that it is just probability and anything could happen.
So instead of just buying it now, you can look at the short-term chart and place a buy order to buy the stock if it surpasses the maximum price of the previous day.
The idea behind this is that it is better to enhance the probability of being right. So if the stock price is going down because of a correction and it surpasses the maximum of the previous day, chances are that it is because the correction is over and it is going back to the main weekly trend.
And of course, do not forget to place your stop-loss.
Conclusion
According to this method, you should never buy stocks in downtrend because if the stock price is going down the probabilities are against you.
When buying, try to do it after a correction because if you buy and then the price starts the correction, you will suffer seeing your money go down, even when you can have the reasonable expectation that in the longer term it will come back to go up.
*Investing is a complicated activity. If you do not have the education to do it, you cannot expect that this article will solve your life. Please look for expert advice and do not take our articles as recommendations. We just show you some information to help you to do further research.