System of “Three Screens” by A. Elder

The most simple, clear and logical. It was developed by the American trader-fund Alexander Elder for playing in the stock and commodity markets, however in many cases it can be successfully applied also in the currency market Forex. The basic principle of this system is the analysis of the market at once on three time scales, therefore it is called the system of “Three screens” – you build 3 graphics and analyze them consistently.

It’s no secret that the main problem of trading is that the same indicator can give conflicting signals on different time scales. For example, it can indicate an uptrend on the daily chart and a downtrend on the hourly chart. In other words, the indications of the indicators become contradictory, and the trading signals depend on the time period of the chart.

In this problem, there is only one solution:

to split the decision-making into several stages, analyzing different timeframes with the help of various tools.

The first screen determines the main trend. He does this on the basis of the weekly chart of the MACD-Histogram. If the histogram is reduced – consider only the options for sale. The sell signal will be stronger if the histogram is below zero. The purchase will be more reliable when the value of the histogram is above zero. The trend on the “first screen” is similar to the tide. And against waves of tide it is better not to swim.

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The second screen defines the medium-term trend with the help of oscillators. Oscillators are Stochastic Oscillator, RSI and other indicators, built on the daily chart. If the first screen indicates a bull market, and the oscillators are in the oversold zone, this is a good signal to buy. And, conversely, on a weekly bearish trend with overbought oscillators on the daily chart, we are considering the possibility of selling. The signals of the “second screen” are waves. The system of “three screens” only considers those waves that do not contradict the tide.

The third screen determines the short-term trend, fixing price breaks for the highs or lows of the previous day. If the price makes a new high in comparison with the previous day, the weekly trend grows, and the day-to-day oscillators fall into the overselling zone, then a buy signal comes in. If the price makes a new low compared to the previous day, the weekly trend decreases, and the day-to-day oscillators rise to the overbought zone, then it’s time to give the order for sale.

It is very important:

the trend can move up and down simultaneously, depending on whether we are looking at the timelines with what time scale. The daily chart can represent a rise, and the weekly chart may show a decline, and exactly the opposite. The trader needs to be careful and not in a hurry, keep the profitable positions open until the week-long trend reverses. For aggressive traders, it is possible to open additional positions for each new buy / sell signal from the second screen to the moment of the weekly trend reversal.

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