The Triple Screen Trading System is a technical analysis strategy designed by Dr. Alexander Elder, a renowned trader and author of the book “Trading for a Living.” The system combines multiple time frames and different types of indicators to filter out false signals and provide more reliable trading opportunities. The idea behind the Triple Screen system is to use three different time frames and three different indicators to confirm each other, giving traders a clearer and more accurate picture of market conditions.

The Triple Screen system is particularly useful for traders who want to capture both long-term trends and short-term price action in a methodical and disciplined manner. By incorporating multiple screens (or time frames), the strategy helps traders avoid market noise and better align trades with dominant trends.

The Three Screens of the Triple Screen Trading System

The Triple Screen Trading System works by using three separate “screens” or time frames, each designed to filter out false signals and refine the trade setup. Here’s how the three screens work together:

1. First Screen – Long-Term Trend (Primary Trend):
   • The first screen is designed to identify the long-term trend of the market. This is done by analyzing a longer time frame, such as the weekly chart or a monthly chart, to determine whether the market is in a clear uptrend, downtrend, or range-bound condition.
   • The primary goal of this screen is to determine market direction, so traders are only focused on taking positions that align with the prevailing trend.
   • Example: If the market is in a strong uptrend on the weekly chart (e.g., higher highs and higher lows), the trader should only look for buy signals in the shorter time frames. Conversely, if the market is in a downtrend, the trader should only focus on selling signals.
   Indicators used on the first screen:
   • Moving Averages (e.g., 200-period SMA for long-term trends)
   • Trend Indicators (e.g., ADX, MACD)
   • Price Action (e.g., higher highs and higher lows for an uptrend)
2. Second Screen – Intermediate-Term Trend (Trend Confirmation):
   • The second screen is used to confirm the long-term trend identified in the first screen. It operates on a medium-term time frame, such as the daily chart or a 4-hour chart.
   • On this screen, the trader will look for signals that confirm the primary trend direction identified in the first screen, such as pullbacks or retracements that present opportunities to enter the market in the direction of the primary trend.
   • This screen acts as a filter for potential trade setups, allowing traders to focus only on entries that align with the long-term trend.
   Indicators used on the second screen:
   • Trend-following indicators (e.g., Moving Averages, Stochastic Oscillator, RSI, or MACD)
   • Pullbacks or retracements in the direction of the trend
   • Price patterns (e.g., flags, pennants, and other consolidation patterns)
3. Third Screen – Short-Term Entry (Timing the Entry):
   • The third screen is where the trader looks for precise entry signals. This screen operates on the shortest time frame, typically the hourly chart or a 15-minute chart.
   • The goal of the third screen is to time the entry into the market based on short-term momentum or price action, ensuring that the trader enters after the trend has been confirmed but before the price moves too far.
   • On this screen, traders look for specific entry signals such as breakouts, candlestick patterns, or momentum-based indicators that provide timing for entering the trade.
   Indicators used on the third screen:
   • Oscillators (e.g., RSI, Stochastic Oscillator) to identify overbought or oversold conditions
   • Candlestick patterns (e.g., engulfing patterns, pin bars, doji candles)
   • Momentum indicators (e.g., MACD, Momentum)

Step-by-Step Implementation of the Triple Screen Trading System

1. Identify the Long-Term Trend (First Screen – Weekly Chart):
   • Start by looking at the weekly chart or another long-term time frame to identify the overall market trend.
   • If the market is in a strong uptrend (e.g., higher highs and higher lows), focus on buying opportunities. If the market is in a downtrend (e.g., lower lows and lower highs), focus on selling opportunities.
   • Use indicators such as the 200-period moving average or the ADX (Average Directional Index) to confirm the trend’s strength. If the price is above the 200-period moving average and the ADX is above 25, this confirms a strong uptrend.
2. Confirm the Trend with the Intermediate-Term Trend (Second Screen – Daily Chart):
   • Once the long-term trend is identified, move to the daily chart to look for trade setups that align with the long-term trend.
   • Look for pullbacks or retracements in the direction of the trend. For example, if the trend is bullish, wait for a pullback to a support level or a moving average before entering a long position.
   • Indicators like the MACD, RSI, or Stochastic Oscillator can help confirm the trend’s strength and potential entry points.
3. Time the Entry with the Short-Term Trend (Third Screen – Hourly or 15-Minute Chart):
   • Once the long-term and intermediate trends are confirmed, shift to a shorter time frame (e.g., 1-hour or 15-minute chart) to time your entry.
   • Look for momentum-based entry signals that suggest a resumption of the trend. This could include:
     • Breakouts from consolidation patterns
     • Candlestick patterns like pin bars or engulfing candles that show momentum
     • Indicators like RSI or MACD crossovers that show the market is shifting in the direction of the trend
4. Set Stop-Loss and Take-Profit Levels:
   • As with any strategy, risk management is key. Place stop-loss orders below the most recent swing low for long positions or above the most recent swing high for short positions.
   • Use take-profit levels based on expected target levels, which could be previous support or resistance zones or a fixed risk-to-reward ratio (e.g., 2:1).
5. Monitor the Trade and Adjust if Necessary:
   • Once you enter the trade, monitor it to ensure it aligns with your initial thesis. If the market sentiment shifts or the price action changes, be prepared to exit the trade early or adjust your stop-loss to lock in profits.

Advantages of the Triple Screen Trading System

1. Reduced Risk of False Signals:
   • By combining multiple time frames and indicators, the Triple Screen system reduces the likelihood of entering trades based on false or misleading signals. The strategy ensures that trades are aligned with both the long-term trend and intermediate-term momentum.
2. Improved Trend Following:
   • The system focuses on capturing strong, long-lasting trends, making it ideal for traders who prefer trend-following strategies. It helps traders stay in the market for the duration of the trend while avoiding choppy, sideways price action.
3. Versatility:
   • The Triple Screen system can be used for various markets and time frames, making it adaptable for forex, stocks, commodities, or indices, whether you are a short-term day trader or a long-term swing trader.
4. Clear Entry and Exit Rules:
   • The system provides clear rules for entry, stop-loss, and take-profit levels, helping traders avoid emotional decision-making and trade more systematically.

Disadvantages of the Triple Screen Trading System

1. Complexity:
   • The system requires traders to analyze multiple time frames and indicators, which may be overwhelming for beginners or those who prefer simpler strategies. It may take time to learn how to properly interpret all the information.
2. Time-Consuming:
   • Since the system relies on multiple time frames and indicators, it requires more time and attention than simpler trading strategies. Traders need to be patient and disciplined, especially when waiting for the correct entry signals.
3. Lagging Indicators:
   • The Triple Screen system uses trend-following indicators, which can sometimes lead to lagging signals. In volatile or rapidly changing markets, there may be delays in confirming trends, leading to missed opportunities.

FAQs

What is the Triple Screen Trading System? The Triple Screen Trading System is a multi-timeframe, trend-following strategy developed by Dr. Alexander Elder. It uses three time frames to identify trends, confirm entry points, and time market entries.

How do I use the Triple Screen Trading System? To implement the system, first identify the long-term trend on a higher time frame (e.g., weekly chart), confirm it on a medium-term time frame (e.g., daily chart), and then time your entry on a shorter time frame (e.g., hourly or 15-minute chart).

What time frames should I use for the Triple Screen System? The traditional Triple Screen System uses three time frames: a long-term time frame (e.g., weekly), an intermediate time frame (e.g., daily), and a short-term time frame (e.g., hourly or 15-minute). These time frames can be adjusted depending on the trader’s preferences and style.