The triple screen trading system was developed by Dr. Alexander Elder in 1985 and yes, it sounds more like a medical diagnostic test than a financial trading method. The triple screen has nothing to do with the number of physical displays used and the allusion to medicine or "screening" is no accident.

Dr. Elder worked for many years as a psychiatrist in New York before becoming involved in financial trading. He's written dozens of articles and books since that time, including "The New Trading for a Living," first published in 1993. He's spoken at several major conferences.

The Argument for Various Trading Methods

Many traders adopt a single screen or indicator that they apply to every trade. There's nothing wrong in principle with adopting and adhering to a single indicator for decision-making. The discipline involved in maintaining a focus on a single measure is related to a trader's discipline and is perhaps one of the main determinants of achieving success as a trader.

But what if your chosen indicator is fundamentally flawed? What if conditions in the market change so your single screen can no longer account for all the eventualities operating outside its measurement? Even the most advanced indicators can't work all of the time and under every market condition because the market is very complex.

Choosing Indicators

Trend-following indicators rise and issue "buy" signals while oscillators suggest that the market is 澳洲幸运5官方开奖结果体彩网:overbought and issue "sell" signals in a market uptrend. Trend-following indicators suggest selling🌜 short in downtrends but oscillators become oversold and issue signals to buy. Trend-following indicators are ideal in a market that's moving strongly higher or lower but they're prone to rapid and abrupt changes when markets trade in ranges.

Some traders have tried to average the buy and sell signals issued by various indicators to determine a balance of indicator opinion but there's an inherent flaw in this practice. The result will be skewed toward a trend-following result and vice versa if the calculation of the number of trend-following indicators is greater than the number of oscillators used. Elder developed a system to combat the problems of simple averaging while taking advantage of trend-following and oscillator techniques.

Elder's system is meant to counteract the shortfalls of individual indicators at the same time it detects the market's inherent complexity. The triple screen trading system is like a triple screen marker in medical science. It applies not one or two but three unique tests or screens to every trading decision. They form a combination of trend-following indicators and oscillators.

The Problem With Static Timeframes

There's another problem with popular trend-following indicators that must be ironed out before they can be used. The same trend-following indicator might issue conflicting signals when it's applied to different time frames.

The same indicator might point to an uptrend in a daily chart and issue a 澳洲幸运5官方开奖结果体彩网:sell signal while pointing to a downtrend i𒐪n a weekly chart. The problem is magnified even further with intraday charts. Trend-following indicators on these short-term charts may fluctuate🅠 between buy and sell signals on an hourly or even more frequent basis.

It's helpful to divide time frames into units of five to combat this problem. There are 4.5 weeks to a month. There are exactly five trading days per week when moving from weekly charts to daily charts. There are between five to six hours on a trading day when moving from daily to hourly charts. Hourly charts can be reduced to 10-minute charts by 澳洲幸运5官方开奖结果体彩网:day traders using a denominator of six and from 10-minute charts to two-minute charts using a denominator of five.

The crux of this factor-of-five c🐻oncept is that tra🥃ding decisions should be analyzed in the context of at least two time frames. You should also employ monthly charts if you prefer to analyze your trading decisions using weekly charts. You should first analyze hourly charts if you day trade using 10-minute charts,

Time Management

A trader can then label this as the intermediate time frame when they've decided on the time frame to use under the triple screen system. The long-term time frame is one order of five longer. The short-term time frame is one order of magnitude shorter.

Traders who carry their trades for several days or weeks will use daily charts✤ as their intermediate time frames. Their long-term time frames will be weekly charts. Hourly charts will be their short-term time frame.

Day traders who hold their positions for less than an hour will use a 10-minute chart as their intermediate t🧜ime frame, an hourly chart as their long-term time frame, and a two-minute chart as a short-term time frame.

The tripl💯e screen trading system requires that the chart for the long-term trend be examined first. This ensures that the t𒁃rade follows the tide of the long-term trend while allowing for entrance into trades at times when the market moves briefly against the trend.

The best buying opportunities occur when a rising market makes a briefer decline. The best shorting opportunities are indicated when a falling market rallies briefly. Weekly declines represent buying opportunities when the monthly trend is upward. Hourly rallies provide opportunities to short when the daily trend is downward.

The Bottom Line

Dr. Alexander Elder developed the triple screen trading system in 1985. The idea behind it is that every trading decision should ౠbe based on three tests. The results are effectively averaged out. Determining the timeframe used can be critical.

It’s critically important to practice with this or any other trading system before jumping in and attempting it with your hard-earned dollars. Consider discussing your findings with an advisor or other expert.

Disclosure: Investopedia does not provide investment advice. Investors should consider their risk tolerance and investment objectives before making investment decisions.