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How To Trade Multiple Time Frames | The Triple Screen System For Forex & Stock Trading - YouTube
Channel: The Secret Mindset
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Many traders adopt a single screen or indicator
that they apply to each and every trade.
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In principle, there is nothing wrong with
adopting and adhering to a single indicator
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for decision making.
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In fact, the discipline involved in maintaining
a focus on a single measure is related to
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the trader's discipline and is, perhaps, one
of the main determinants of achieving success
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as a trader.
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But what if your chosen indicator is fundamentally
flawed?
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What if conditions in the market change so
that your single screen can no longer account
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for all of the eventual outcomes operating
outside of its measurement?
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The point is, because the market is very complex,
even the most advanced indicators can't work
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all of the time and under every market condition.
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For example, in a market uptrend, trend-following
indicators rise and issue "buy" signals while
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oscillators suggest that the market is overbought
and issue "sell" signals.
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In downtrends, trend-following indicators
suggest selling short, but oscillators become
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oversold and issue signals to buy.
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In a market moving strongly higher or lower,
trend-following indicators are ideal, but
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they are prone to rapid and abrupt changes
when markets trade in ranges.
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Within trading ranges, oscillators are the
best choice, but when the markets begin to
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follow a trend, oscillators issue premature
signals.
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This is why alexander elder came up with the
triple screen system.
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The triple screen system was first proposed
by elder as a stock trading strategy – but
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it’s regularly used in forex and other markets
as well.
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So, what is the triple screen?
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Triple screen is essentially a trend following
system, but the main characteristic, is that
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it works by analyzing charts at multiple timeframes.
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The root of elder’s triple screen is that
it tries to time trade entries to coincide
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with market corrections or pullbacks.
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These can happen in both bull trends and bear
trends.
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The strategy only buys or sells when the signals
between different screens at different timeframes
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are in agreement.
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Here are the steps you should follow if you
want to implement the triple screen:
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The first step is to choose which charts to
use.
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Most traders who use triple screen choose
a time ratio of between 3 and 5.
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This means that the period of each chart reduces
by a factor of 3, 4 or 5 from the longest
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duration chart to the shortest duration chart.
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If the long range chart is the weekly, we
divide by 5 to get the tactical chart, then
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by 5 again to for the executional chart.
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If the exact period chart doesn’t exist
on applying this rule, the closest one is
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used.
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If you prefer to hold your trades longer,
you might use the weekly, daily and h4.
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For swing traders, the daily chart, the 4h
and 1 hour charts are best suited.
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The 4 hour, 1 hour and 15 minutes are perfect
if you prefer day trading.
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Choosing the right chart set depends on your
trading goals.
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If you are a buy and hold, or sell and wait
trader, then a longer range setup is perhaps
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going to be the best choice.
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If you trade intraday on the other hand, you
might prefer short range set of charts.
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Now, how to read the triple screen.
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In order to identify the entries, elder’s
original system used a combination of MACD
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and the force index, which are types of momentum
oscillators.
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In practice though, there are a variety of
other indicators that will do the same job,
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and work equally well or better.
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I personally use the hull ma on the longer
term chart, the RSI on the intermediate chart
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and I use price action on the short term chart,
to pinpoint the entry.
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Timing is everything with most strategies,
and this one is no exception.
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Triple screen doesn’t have a definitive
buy or sell signal.
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It works as a system of confirmations from
one time frame to the next.
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This is done in order to find a suitable time
to enter a trend in the likely direction the
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market is moving.
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This can be both a good thing and a bad thing.
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Because while there are no rigid criteria,
this does mean you can incorporate your own
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thinking into the strategy.
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It also means you can make it simpler by using
fewer indicators.
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So when to enter the market?
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The time to buy in the triple screen is when
a bull trend has just undergone a correction
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and is beginning to turn up again.
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Conversely, the time to sell in the triple
screen is when a bear trend has just undergone
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a correction and is beginning to turn down
again.
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Here’s how it works: to identify this, first
pull up the longest range screen – in this
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example we’ll use the daily chart.
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First step: determine the trend: I use the
100 hull moving average line to confirm the
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trend.
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In this particular chart we see the general
direction of the trend is bearish.
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Keep in mind that you can use any other tool
to determine the trend, elder used the MACD,
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I use the 100 Hull ma, you can use your favorite
trend indicator.
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Next we need to check the middle chart, and
in this example it is the h4 chart.
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We use this chart to determine the market
momentum.
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Using the RSI, I look at the chart to confirm
if a correction is completing.
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What we are trying to determine here is that
the upward buying pressure from the correction
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is reducing.
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This means the flow of profit taking and other
buy orders has hit a peak.
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It’s essential here as well that we check
to confirm this isn’t the start of a new
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bull market.
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If the upward correction is particularly strong,
you need to wait.
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So we know that the daily trend is down, and
we also identified an upward correction on
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the h4.
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I’m also interested in the RSI value, I
want it to below 50 and stay below it.
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Now, we add the execution chart, the 1 hour
chart.
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On this chart we’re looking for the optimum
time to execute the sell order.
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That means we look for evidence that the pullback
is completing and the market is reaching an
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overbought point on this time scale.
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I prefer to use simple price action, most
of the times i search for trendline breakouts.
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In this case we see this upslope trendline,
which was broken to the downside, after a
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correction, in the direction of the primary
trend on the daily chart.
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When to exit the trade?
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Normally there isn’t any take profit defined
for each order.
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I prefer to use a trailing stop loss.
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For this sell order, the exit stop loss is
gradually moved downwards as the market makes
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lower lows.
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This is done to lock in the profit.
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The loss amount and the order sizes are set
according to your desired risk limits.
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Let’s take another example.
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The first screen – we analyze this time
frame to identify the direction of the larger
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trend with a trend indicator.
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Again, I use the 100 Hull ma.
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Once the first screen identifies the direction
of the tide, this is the only direction in
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which you will be allowed to trade when looking
at your intermediate chart.
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So if your trend indicator signals that it
is an uptrend, like in this example, you can
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only buy.
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Second screen: once we know the direction
of the trend, we are looking for a wave in
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the contrary direction on our intermediate
chart that will give us a beneficial entry.
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So you are looking at the h4 chart as your
intermediate time frame, as the daily chart
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showed that the larger trend is upward.
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You are now looking for an h4 decline which
would provide you with an advantageous opportunity
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to buy the market.
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You would do this by searching for a buy signal
from your oscillator.
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In this example, I use the RSI.
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I want to see the RSI above 50.
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Any sell signals in this case would be ignored
because the uptrend from the first screen
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has already filtered those out.
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We move to the third screen once we get an
agreement from the first and second screen:
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that is, when the larger trend is up, and
an intermediate decline has generated a buy
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signal from our oscillator.
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In the third screen you determine the specific
entry point.
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So you are aiming to go long in the market
with a h4 chart used in the second screen.
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Like in the previous example, i prefer to
rely on price action to enter the market,
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as I don’t like to use many indicators.
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We have a nice trend line breakout on the
h1 chart, which gave us the green light to
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enter long.
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Here are other examples of triple screen trades.
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The triple screen system can serve as a very
good basis for building your own trading strategy.
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Its big advantage is the confluence of time
frames, with following only a long-term trend.
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It’s not a perfect system by any means,
but it surely reduces the risk of entering
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at wrong times in the market.
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If you got any value from this and learned
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Until next time.
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