System of 3 screens

Posted on June 19th, 2008 by admin, under online forex trading.

System of 3 screens

In the following article one of the Forex trading strategies which is based on so-called “system of 3 screens” is discussed.

System of 3 screens

According to some estimates more than 40% of professionals in one way or another use the system. Indeed this is the simplest and most popular from publicly known systems, and we advise beginners to start from it.

TS was created by Alexander Elder in 1985 and since then it did not actually changed, this means that its is reliable and wide applicable, both in the stock market and in the Forex market.

The main problem of trading is that a the same indicator may give contradictory signals in different time scales. For example, it may indicate ascending trend on the daily graph and descending trend on the sentinel graph. In other words, the testimonies of indicators become contradictory, and trading signals depending on the time period of the graph.

And there is an only one solutionof this problem: to split making a decision on a several stages, analysing different time frameswith different instruments.

Without a doubt, the best way to come to such separation offers the method of three screens. You build 3 graphs and consistently analyze them.

A “middle” screen gets out the first - this is the time scale to which most corresponds the length of the opened position (usually, four-hour or the sentinel graph).

Next, long-term and short-term scales are selected, which differ on about 10 times from the average for middle one. These are usually daily (four hour) and sentinel (15 - or 5 - minute) graphics.

Analysis of the system “triple screen” begins with a long-term graph. The system belongs to trend ones, and the first task which faces here is defining of basic long-term trendin the direction of which it is needed to play, and its state - beginning, middle or end.

Accordingly, on this graph it is necessary to apply trend indicators, the main of which is MACD-histogram. Direction of trend is determined by ratio of two last strokes or points of histogram: an ascending histogram, when the last point is higher than the previous one, points to the upward trend, a descending histogram points on a necessity to play on a sale.

* It is necessary to take into account that a turn or slump of histogram means completion and turn of tendency.

* Turns upwards occurring below the zero line, give stronger signal to buy than turns above the line.

* Turns downward occurring above the zero line, give a stronger signal to sell,than turns below the zero line.

It is recommended to use few indicators of tendencies simultaneously to avoid false alarms. Base rule is to play only in the direction of tendency, exposed on the first long-term “screen”.

For example, in certain moment of time, we see bright bull trend on the H4 graph:

A MACD histogram is in positive area and rises.

On the second middle screen it is necessary to identify movement against basic trend - “wave which runs against current”. It is like the yellow colour of traffic-light - it is necessary to begin prepares to the transaction, the turn of correction on trend will specify on possibility of buying or selling.

At a basic tendency to the increase on the first screen, for example, four-hour graph, hourly downs indicate the possibility of buying, at an a week’s downtrend the daily gettings up specify on potential possibility of sale at the end of the exposed correction. On the second screen it is necessary to use signalman, such as RSI, Stochastic etc.

* At the same time: a signal to buy is given if the first screen have ascending trend, and a signalman on the second screen, such as RSI, fell below the oversold line of 20% and begins to recover;

* a signal to sale is given, if on the first screen have descending trend, and RSI on the second screen rose higher than line of overbought 80% and begins to fall.

Let’s suppose. On the picture we see the ideal moment: stohastik unfolded after the correction and gave an order to buy.

The “third screen” is not the graph even but is the method of placing of orders on a purchase or sale depending on location of indicators on two previous graphs. Elder calls his “sliding order”.

* So: if a basic tendency goes upwards, and correction - downwards, sliding signals to a purchase catch the moment of overhead breaches of level of resistance. The method of sliding order works about buying works when, for example, week’s tendency goes upstairs for a long-term screen, and a signalmen falls on the second daily screen. Place an order about a purchase hardly higher then a maximum of previous day. At getting up of prices position on a purchase must be opened, as soon as a price will rise higher than comb of previous day to the proposed level. If prices continue to decline, it would not affect the order to purchase. Then push the order the next day at a teak above the last peak of quotations.

«Go on a daily to drop an buying order, while it will not appear affected, or until a one-week indicator, developing downward, will not cancel signal about a sale».

* if a basic tendency goes downward, and correction goes upwards, sliding signals to sale catch the moment of lower breaches of support level. At a week’s tendency of lowering wait while daylight recovery signal-man does not involve the method of sliding order about a sale. Place an order to sale a bit below of a minimum of closing date. As soon as a market will set down, you automatically will open position on lowering.

If a price rising continues, daily move the level of order about a sale on a few tics below than a minimum of the last candle. Purpose of method of sliding order about a sale is to catch the moment of daily lower breakthrough. An order comes into force when a daily tendency to the increase is torn off, and an a week’s downtrend again enters into the rights.

How protective orders should be placed in the triple screen system

Stop-order on fixing of loss at position on raising must be put a bit lower than a minimum of this or previous playing day - at the least of two.

Stop-order on fixing of loss at position on lowering must bet put a bit higher than a maximum of this or previous playing day - at the most from two. Further warrants can be moved on motion a market.

And. Elder. «How to play and win on the exchange».

Now let’s look at how correctly we predicted the market.

As you can see, a prognosis appeared accurate. And taking such motion, it is possible to increase the deposit approximately in one and a half - twice.This is truly powerful system.

SLP Trading Group
http://shop.profxtools.com

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