Triple Screen Trading System

Check more of: Education

By

The triple screen trading system is a trading system that aims at removing the flaws of focusing on only one technical indicator and one time frame when using technical analysis to make trading decisions. It was developed by Dr. Alexander Edler in 1985. He worked also as a psychiatrist, hence the sort of a medical term of “screening”.

But first: What is time frame? 🙂

Time Frame

A time frame in technical analysis is basically what its name suggests – a frame of a time period. The most common time frame periods are 1 minute, 2 minutes, 5 minutes, 10 minutes, 15 minutes, 30 minutes, 60 minutes (an hour), 240 minutes (4 hours), a day, a week, a month. What those periods mean is that what we see on the graph is the price change of the stock or more generally the price change of the asset (be it a stock, option, currency, crypto, etc.) for that selected period. If we are watching an hourly graph (that is the time frame is set to be 60 min or 1 hour) and we are using candles to represent the price movement (candles IMHO is the most popular way of price representation. Disagree?) then one candle will show the price change for one hour. Two candles will show the price changes for two hours and so on.

So what does this mean to a trader’s decision making process?

The chosen time frame gives us information for the price movement for that particular period. The longer the time frame, the more information one bar of it would contain. The more information one bar contains, the “heavier” it could get in a trader’s decision making system. Hence, the time frames of a higher origin (monthly is higher than weekly, weekly is higher than daily, etc.) contain more information, more things have happened during them, more money has changed hands and thus what we see on those higher time frames weighs more. In simple words, the monthly time frame would show us the general trend of a market or a stock so, for example, we don’t make the mistake of taking a premature long term short position if the market is clearly headed north (up). Still, if we don’t expect to hold our position for such a long period, the shorter time frames, i.e. daily or hourly, could suggest there is a probability of a pullback and we could take advantage of that.

The Triple Screen System

Here comes the importance of the Dr. Elder’s triple screen trading system. In that system traders do not focus only on one time frame and by doing this they could get a broader view of the current market sentiment and conditions. If traders focus on one indicator and only in one time frame, i.e. daily or hourly chart, they might be surprised by a price movement that is in line with a bigger time frame to which they didn’t pay attention to. To avoid this the triple screen system suggests that traders use three time frames in their analyses. The main time frame is the one on which they would like to trade. One may call it the intermediate time frame. One magnitude longer becomes the higher time frame and one magnitude shorter becomes the lower time frame. Having in mind the above mentioned most common time frames, one magnitude in a case where the chosen intermediate frame is ‘daily’ would involve weekly and hourly charts.

A bit of a theory for the more curious ones here : )

It is worth to mention that most of the time periods in trading could consist 4, 5 or 6 similar smaller time periods. One week in a weekly chart consists of 5 days. One day in a daily chart consists usually of 6 one hour periods when trading stocks. In the case of “always open markets” which are for example currencies or crypto markets, a day chart would consist 6 4-hour periods, and so on. That is why in Edler’s triple screen system the focus is on at least three different time frames – it aims to expand the available information so the trader could get a better view of what is currently happening in the market.

End of the deeper theory.

Alexander Edler’s triple screen system builds on the idea that the bigger time frames “lead”. They show and contain the bigger movement in the respective market that is currently underway.

By using this system a trader could see any pullback on the intermediate time frame as an opportunity to enter long if the higher time frame shows that the market is in an uptrend. Respectively, any rallies on hourly charts could be used to sell short if the daily chart shows the main trend is down. The lower time frames could be used to notice changes in the trend before they accumulate enough to be seen in the higher time frames. So the lower time frames could be used as a tool to notice if a trend is about to change.

Final words

That’s all the needed theory behind the triple screen trading system. The rest is practice 🙂 If something is not quite clear, feel free to drop me a line in the comments below.

Happy and successful trading!

Your email address will not be published or shared. Mandatory fields are marked with *

*
*