Similar in name rather to a medical diagnostic test, the three-screen trading system was developed by Dr.Alexander Elder back in 1985 year. The medical associations here are by no means accidental.: before, how to immerse yourself in the world of finance, Dr. Elder worked for many years as a psychiatrist in New York. Since then, he has written numerous articles and books., including the bestseller “Trading For A Living” (1993). He has also spoken at several world conferences.
Lots of Traders get used to referring to a single screen or indicator to create each trade. Basically, there is nothing wrong with using a single indicator to make a decision. Actually, discipline, which is required to keep attention on one scale, being related to the discipline of the individual, maybe, is one of the main components of achieving success in quality trader.
But what, if the indicator you have chosen is fundamentally flawed? What, if condition market changed so, that your only screen can no longer demonstrate all possibilities, remaining off his scale? It may well be, because marketvery complex and even the most advanced indicators cannot work at all times and in all conditions market. For example, in an uptrend, trend-following indicators rise and generate buy signals, while oscillators assume, what market overbought and give signals "sell". In downtrends, trend-following indicators suggest playing down, but oscillators become oversold and demand to buy. On Market, confidently going up or down, trend following indicators are ideal, but they become too volatile, when markets traded in ranges. In the trade channel, but, Oscillators are becoming the best choice, but, when market begins to follow the trend, they give premature signals.
To determine the balance of indicator readings, some traders tried to compose average buy and sell signals based on various indicators. But this practice has a significant drawback.. If the number of trend-following indicators in the calculations is greater, than the number of oscillators used, then the result, naturally, will be distorted in the direction of following the trend and vice versa.
Dr. Elder developed it the system, helping to solve the problem of simple addition of readings when taking the best of oscillators and of trend-following indicators. Elder's system is simultaneously designed to neutralize the shortcomings of individual indicators, since it helps to discover the inherent Market complexity. Like a triple screen marker in medicine, trading system three screens applies more than one to each trading decision, не два, but as many as three unique tests or screens, which form a combination of trend-following indicators and oscillators.
Time scale problem
Popular trend following indicators have, but, and another problem , which should be decided before, how to use them. The same trend following indicator can give conflicting signals at different time frames. For example, the same indicator can indicate an uptrend on a daily chart and give a sell signal and indicate a downtrend on a weekly chart. The problem is further compounded on intraday charts. On these short-term charts, trend-following indicators can oscillate between buy and sell signals every hour or even more often..
To deal with this problem, it is useful to divide the time frame by five. When we share our periods charts for weekly, мы получаем 4.5 weeks in a month. Moving from weekly charts to daily charts, we get exactly five operating days a week. Taking it one more level further, from daily to hourly charts, shows up somewhere around five – six o'clock working day. For intraday Traders hourly charts can be shortened to 10 minute (denominator six) And, finally, from 10-minute charts to 2-minute (denominator five).
Some of the difficulty of this factor of five is that, that trading decisions must be analyzed in the context of at least two time frames. If you prefer to analyze your trades, using weekly schedule, You should also use monthly charts.. If you trade intraday using 10-minute charts, You should analyze the hourly charts first.
As soon as trader chose a time scale for use in a three-screen system, he marks this scale, as an intermediate. Long term timescale – one step (for five periods) up; and the short-term time frame – one step shorter. Traders, who hold their trades for several days or weeks will use daily charts as an intermediate time frame. Weekly charts will be their long-term scale.; and hourly charts will be their short-term time frame. Внутридневные traders, who hold their positions for less than an hour, will use a 10 minute chart as an intermediate time frame, hourly chart – as a long-term scale, and the two-minute schedule – as short term.
Система торговли three screens requires, so that the long-term trend chart is examined first. This guarantees us, that the trade will follow a long-term trend, opening positions from time to time, when market moves against the trend for a while. The best buying opportunities arise, когда растущий market makes a short decline; the best opportunities to enter down appear, when falling prices rise briefly. When the monthly trend is up, declines on the weekly chart provide a buying opportunity. The rise on the hourly chart gives the opportunity to open down, when the daily trend is downtrend.
Рыночные тренды
How to think, stock market follows three trends, which are identified by market analysts on history and which, it can be assumed, will continue in the future. These trends are as follows: long-term trend lasts for several years, intermediate trend – a few months, and the lifetime of a short-term trend, as it is considered, is several weeks.
Robert Rhea, one of the first technical analysts market, described these trends as currents (long-term trends), волны (intermediate trends) and ripples (краткосрочные тренды). Trade in the direction of the flow market – initially the best strategy. Opportunities to enter a trade, provided by waves and ripples, should usually be ignored. These simple concepts were formulated in the first half of the twentieth century and, хотя нынче market became more difficult, their fundamentals remain true. Traders can trade based on currents, waves and ripples, but you should be clear about the time scale, to which these illustrations apply.
IN системе торговли three screens main timescale, on which trader calculates goals, called intermediate time scale. Long term timescale – one order of magnitude higher, while the short-term time frame trader – one order of magnitude shorter. If your comfort zone or intermediate time frame allows you to hold positions for several days or weeks, then you will be interested in daily charts. Your long-term timescale will be one order of magnitude larger and, starting analysis, You will be using weekly charts. Your short term time frame will be determined by the hourly charts.
If you are intraday trader, which holds the position for minutes or hours, you can use the same principles. The intermediate time frame can be a ten minute chart; the hourly chart corresponds to the long-term time frame, but two minutes – краткосрочному.
The first screen of a three-screen trading system: Market Stream
Система торговли three screens defines a long-term schedule or flow market, as a basis for a trading decision. Traders should start by analyzing the long-term schedule, in order (on 5 periods) more, than the time scale, wherein trader plans to trade. If you usually started by analyzing daily charts, try to adjust your thinking to the time scale, enlarged five times, and do your analysis, exploring instead of daily weekly charts.
Using trend-following indicators, You can identify long term trends. Long-term trend (market flow) indicated by the slope of the weekly MACD-Histogram or the ratio between the last two bars on the chart. When the MACD-Histogram is pointing up, bulls control the situation and the best solution would be to open a long position. When the indicator turns down, power goes to bears and you should consider selling.
Any trend following indicator, предпочитаемый trader, may well be used as the first screen of a three-screen system. Traders a referral system is often used for the first screen (ADX) or even less complex indicator, like the slope of a 13-week exponential average. Regardless of the trend following indicator, with which you decided to start, the principles are the same: analyze the trend first, using weekly charts, and then, on daytime, look for indications of movement in the direction of the weekly trend.
Interesting, that the habit of observing market flow develops your ability to identify a trend change. Single rise or fall of the chart (for example, on the weekly MACD-Histogram) can be your means of identifying a change in a long-term trend. When the indicator turns up, being below its centerline, the best buy signal of the market flow occurs. When the indicator turns down above its center line, we see good sell signals.
The seasonal pattern to illustrate the price movement came to us from the concept, designed by Martin Pring. Pring's model dates back to, when economic activity was based on agriculture: grains were sown in spring, the harvest ripened in the summer, and in the fall we were preparing for the winter cold. According to Pring's model, traders use these parallels, getting ready to buy in spring, sell in summer, open short positions in autumn and close them in winter.
Pring's model is applicable to the use of technical indicators.. The “seasons” of the indicator allow you to accurately determine, what stage of the market cycle are you in?, buying, when prices are low and selling, когда они поднимаются. The exact time of year for any indicator is determined by its slope and location above or below the centerline. When the MACD-Histogram starts to rise, located below its centerline, this – Spring. When it rises above the center line, this – summer. When she falls, but still above the center, this – autumn. When it falls below the center line, this – winter. Spring – time of year to open long positions, and autumn – to open short.
Do you prefer to compare the first screen of the three-screen system with the ocean and its currents, or do you prefer the analogy with the changing seasons?, the basic principles remain the same.
Using the ocean comparison, invented by Robert Rhea, we would compare daily activity market with a wave, which goes against the long-term weekly course. When the weekly trend is up (weekly growth), and daytime falls, there is a purchase opportunity. Когда недельный тренд снижается (drop on the weekly chart), daily rally indicates the possibility of a short sale.
Second screen - Market Wave
Daily deviations from the long-term weekly trend are detected by non-trend-following indicators (type of MACD-histogram), while the oscillators. By its nature, an oscillator gives a buy signal, when market in the fall, and the sell signal, when market growing. The beauty of the three-screen system is, what does she allow traders focus only on those daily signals, which point in the direction of the weekly trend.
For example, when the weekly trend is up, the system of three screens considers only buy signals from daily oscillators and ignores sell signals. When the weekly trend moves down, triple screen ignores any buy signals from oscillators and only shows signals to open a short position. Four possible oscillators, which can be easily embedded in this system – strength index, Elder's ray index, stochastic and Williams% R.
Strength Index
2-day exponential average (EMA) from the strength index can be used in combination with the weekly MACD-Histogram. Really, the sensitivity of the two-day EMA of the force index makes it the most suitable for combination with other indicators such as the MACD-histogram. Definitely, when the 2-day EMA of Force Index rises above its centerline, it shows, that bulls are stronger, than bears. When the 2-day EMA of Force Index falls below its center line, then the indicator shows, that bears are stronger.
Precisely speaking, traders should buy, when the two-day EMA of the force index turns negative during an uptrend. When the weekly MACD-Histogram indicates an uptrend, the best time to buy occurs with a short pullback, indicated by the negative two-day EMA of the force index.
When the 2-day EMA of the Force Index turns negative during the weekly uptrend (what the weekly MACD-Histogram tells us), You must place a buy order above the high of that particular day's price. If the continuation of the uptrend is confirmed and the price goes up, a buy-stop order will be triggered and a long position will open. If the price starts to decline instead, your order will not be executed; but, You can then lower the level of your buy order like this, so that it is placed one tick above the high of the last bar. As soon as the short-term trend reverses and your buy-stop order is triggered, You then need to protect yourself with a stop loss below the low of that or the previous trading day., depending on that, which one is below. In a strong uptrend, your stop loss will not be triggered, but the deal will be closed early, if the trend turns out to be weak.
The same principles, only the other way around, apply for a weekly downtrend. Traders have to short, when the 2-day EMA of the force index turns positive during a weekly downtrend. Then you should place a sell order below the low of the last price bar.
Like a long position, описанной выше, a short position also allows you to use protective stops, to save profits and avoid unnecessary losses. If the 2-day EMA of the Force Index continues to rise after you place your sell order, You can raise the sel-order level like this, so that it is one tick below the low of the last bar. When you are short when the price goes down, finally, will open, You can then place a protective stop just above the high or the last, or the previous bar, depending on that, который из них выше.
If your long or short position is not yet closed, You can use the 2-day EMA of the Force Index to add to it. In a weekly uptrend, keep adding to the long position each time, when the force index becomes negative; similarly add to a short position on a downtrend every time, when the force index becomes positive.
Further, the two-day EMA of the force index will indicate the best time to close a position. When trading based on a long-term weekly trend (which the weekly MACD-Histogram signals us about) trader should exit the position only if, when the weekly trend changes or if there is a discrepancy (divergence) between the 2-day EMA of the force index and the trend. When the divergence between the 2-day EMA of the force index and the price is bullish, a strong buy signal appears. Бычья дивергенция возникает, when the price makes a new low, and the bottom of the force index turns out to be less deep, чем предыдущее.
Sell signals are given by bearish divergences between the 2-day EMA of the force index and the price. Медвежья дивергенция возникает, когда цена вырастает до нового максимума, while the force index draws a lower top, чем предыдущая.
Market wave – second screen in системе торговли three screens and this second screen is beautifully illustrated by the index of strength; but, some other indicators, Elder's beam type, Stochastic and Williams% R can also be used as an oscillator for the waveform screen market.
Система торговли three screens is based on the use of the best of the following trend indicators and the best oscillator. Trader primarily interested in identifying any discrepancies between the readings of a long-term trend-following indicator such as a weekly MACD-Histogram and a relatively shorter-term oscillator such as a force index, Elder's beam, stochastic or Williams% R.
Second screen – Elder's Beam (Elder-Ray)
Elder's Beam, invented by Dr. Alexander Elder, based on the concepts of strength of bulls and strength of bears, relative strength of bulls and bears on Market. Bull Strength measures the ability of market bulls to push prices above the consensus average, which is the actual price, по которой конкретная stock торгуется в данный момент времени. The strength of the bears – the ability of bears to lower the price below the current level – current average agreed cost.
Using a long term trend following indicator, for example, weekly MACD-Histogram, trader can identify the direction of a long-term trend. The strength of the bulls and the strength of the bears are then used, to find trades on daily charts, which are directed in the same direction, as the weekly trend. The system of three screens lives up to its name, including "shielding" trader from signals, not corresponding to the direction of the trend: if the weekly trend is up, only buy signals from Elder's beam are considered. If the weekly trend is down, only Elder's beam sell signals are taken into account.
Buy signal
There are two conditions, absolutely necessary for, to trader could consider buying: 1) there must be a weekly trend and 2) strength of bears, according to Elder's ray, should be negative, but growing. On the second condition – negative power of bears – worth staying in more detail. Opposite condition, when the strength of bears is positive, happens in a runaway uptrend, dangerous for trade Market, despite the apparent strength of the trend. The problem with buying a runaway uptrend is, that you are betting on the big fool theory, которая гласит, that your profit will only be received, if you manage to sell to someone, who wants to pay an even higher price.
By placing a buy order above the high of the last two days, your stop order will only be executed, if the rally continues. Once you have entered a long position, You will be able to protect your position with a stop below the last low.
Bullish divergence between bearish strength and price (average agreed cost) represents a strong buy signal. If the price falls to a new low, and the strength of the bears shows a higher bottom, than the price, bears are getting weaker. When the strength of the bears goes up from this low, You should buy more shares, than usual.
Elder's Beam can also be used, to determine the best time to sell a position. Tracking the nature of the peaks and troughs of the bulls strength indicator, You can establish their real capabilities. Comparing price peaks with indicator peaks, You can determine the strength of an uptrend – until each new peak in price coincides with a new peak in bull strength, the upward trend is not threatened. But when the price reaches a new high, and the strength of the bulls draws a smaller peak, than the previous, means, bulls are losing power, and we get a sell signal.
Short positions
Elder's beam on the second screen системы торговли three screens can also be used, to define the conditions for a short sale. Two prerequisites for entering a short – 1) downtrend and 2) bull strength is positive, but decreasing.
If the strength of the bulls has already become negative, not worth selling, because the bears completely outplayed the bulls. If you are selling in such conditions, то значит, actually, You bet, that bears still have enough strength, to submerge the bulls even further under the water. As in the case, описанном выше, when trader holds a long position with positive bearish strength, You bet on the even bigger fool's theory.
When the strength of the bulls is positive, but falls, the bulls managed to catch, but start to slide down again. If you place a sell order below the low of the last two days, this order will be triggered only if, if the fall continues. A protective stop can then be placed above the last local low.
Bearish divergences between bull strength and price (average agreed cost) give us strong signals to open down. If the price draws a new high, and the next peak of the bulls' strength turns out to be less than the previous one, bulls got weaker, чем прежде, and the uptrend can no longer continue. When the strength of the bulls goes down from the lower top, You can safely short more, than usual, number of lots.
By Elder's Beam, you can also decide, when to close short positions. When your long-term trend is down, bears strength indicator will indicate, whether the bears are getting stronger or weaker. If a new low in price occurs simultaneously with a new low in bears' strength, the current downtrend is relatively stable.
Bullish divergence gives us a signal to close short and prepare to open long positions. Бычья дивергенция происходит, when the price draws a new low, and the strength of the bears makes the bottom shallower, bears are losing momentum and falling prices are slowing down.
And for long, and for short positions the divergence between the strength of the bulls, the strength of bears and price indicate the best opportunities for a trade. In the context of a long-term trend, indicated by our first screen market, Elder's beam identifies the moment, when dominant on Market the band hovers below the trend surface.
For the second screen системы торговли three screens Dr. Alexander Elder recommends using sophisticated and modern oscillators, like an index of strength and Elder's beam. but, traders may not limit themselves to these two indicators – your favorite oscillator, probably, will work no worse, so you may well use that oscillator, with which you feel most comfortable. Two more oscillators, which can be easily used on the second screen – it is stochastic and Williams% R.
Стохастик
Stochastic is currently one of the most popular oscillators and is included in many widely available programs., used as separate traders, так и профессионалами. In particular, traders, that use computerized systems to detect and execute transactions, находят, that stochastic oscillators have many good qualities. For example, stochastic shows excellent history, separating bad signals. Precisely speaking, stochastic is able to filter out market noise, like ultra short-term movements, which are not in the interests trader.
It's like Elder's beam, stochastic accurately identifies the moment, when bulls or bears get stronger or weaker. For Traders, using stochastic, three types of signals are important – дивергенции, level of stochastic lines and their direction.
Divergences
Bullish divergence forms, when the price draws a new low, and the stochastic passes a higher base, than on the previous decline. It means, what bears on Market lose strength and the price goes down simply by inertia. A very strong buy signal appears, as soon as the stochastic reverses from its second low. Traders it is recommended to open a long position and place a protective stop below the last low market. The strongest buy signal appears, when the first decline of the stochastic line was below the oversold zone line (most often this is a level 20), а второе – above this line.
Vice versa, bearish divergence occurs, когда цена вырастает к новому максимуму, and the stochastic draws us a lower top, than on the previous rise. Bulls then become weaker and prices rise sluggishly. A critical sell signal appears, when the stochastic reverses down from its second top. Traders take a short position and place a protective stop above the last high of the price. The best sell-short signals occur, when the first top of the stochastic is above the overbought line (usually this is the level 80), and the second – below her, as opposed to the best signals to open up.
Stochastic line levels
Levels (usually 80 And 20), reached by stochastic lines, perfectly characterize overbought or oversold condition market. When the stochastic rises above the upper line, market, as they say, overbought and ready to turn down at any moment. And vice versa, oversold condition, wherein market ready to rise, represented by the fall of the stochastic below its lower level.
Traders, but, one should be careful in interpreting overbought and oversold conditions when using stochastic: during a long-term trend, the stochastic may give opposite signals. In a strong uptrend – which can be seen on the first screen trader – the stochastic becomes overbought and gives erroneous sell signals at the time, how market growing. In downtrends, the stochastic quickly becomes oversold and gives buy signals earlier, than you need.
Problems in interpreting overbought and oversold conditions using a stochastic can be easily eliminated, using MACD-Histogram, as the first screen системы торговли three screens. Traders should follow buy signals from daily stochastic only, when the weekly MACD-Histogram shows an uptrend. When is the trend going down, only sell signals should be taken into account from the daily stochastic.
Having identified an uptrend on the weekly chart, wait before buying, until the daily stochastic lines fall below their oversold level. Immediately after that, place a buy order above the high of the last price bar. Then you can protect the position with a stop, placed below the low of the current or previous day, depending on that, which one is below.
Going a little deeper into the details of this type of analysis, then it should be said, that the shape of the bottom of the stochastic can indicate the relative strength of the future rise. If the base is narrow and shallow, then bears are weak, and take off, по всей вероятности, will be strong. If the bottom is deep and wide, then the bears are strong and rise, probably, будет слабым.
When you identify a downtrend on a weekly chart, do not enter the deal, until the daily stochastic rises above its high. Then you can immediately place a sell order short below the low of the last price bar, however do not wait for stochastic lines to cross, insofar as market then already, probably, будет в падении. To protect a short position, place a protective stop above the high of the current or previous day, depending on that, какой из них выше.
The shape of a stochastic top can also indicate the relative steepness or lethargy of a future decline. market. The narrow top of the stochastic line shows weakness of the bulls and the likelihood of a serious decline. A high and wide stochastic top demonstrates the strength of the bulls, and consequently, short positions should be avoided.
In conclusion, let's say, what means, which traders can filter out most unsuccessful trades, require a good knowledge of overbought and oversold conditions. When the stochastic is overbought, do not buy. When the stochastic is oversold, do not go short.
Stochastic Lines Direction
Everything is pretty simple here – when both stochastic lines move in the same direction, this confirms the short-term trend. When the price rises along with both stochastic lines, восходящий тренд, probably, continue. When prices are falling at that time, how both stochastic lines go down, short term downtrend, probably, continue.
Williams %R
Final Oscillator, which should be considered in light of its use as a second screen системы торговли three screens – Williams %R, which is actually interpreted like a stochastic. Williams %R, or Wm% R, measures the ability of bulls and bears to close the price near the border of the current range. Wm% R confirms the strength of the trend and warns of upcoming possible reversals.
We will not consider the method for calculating Wm% R in detail here., since its value can be obtained using any of the technical analysis packages widely available today. In its calculations, Wm% R measures the location of the last close price relative to the current high-low range. Важно заметить, that for effective work in системе торговли three screens Wm% R requires at least four – five daily price ranges.
Wm% R displays the distance from the highest maximum within the specified range to the lowest minimum on a 100% scale. The distance from the last closing price to the top of the range is expressed as a percentage of the full range. When Wm% R is 0 % from 100%, bulls reach their peak and the price closes at the top of the range. In other words, value zero, shown at the top of the indicator window, indicates the maximum strength of the bulls. When Wm% R shows a value 100, bears are at their peak, and they are able to close the price close to the bottom of the existing range.
Range maximum – an accurate measure of the maximum strength of the bulls during the period in question. The low of the range corresponds to the maximum strength of the bears during this period. Wm% R gives the exact power ratio between bulls and bears on the close market – at the most important time to reveal the true mood market.
If we develop this concept, we'll see, what Wm% R shows, which group is able to close market in their favor. If the bulls could not close market on or near the top during the rally, then the bulls proved, which are weaker, what they seem. If the bears can't close market near low when falling, they are weaker, than it seems at first glance. This situation provides an opportunity to purchase.
If you draw the reference lines horizontally at levels 10% And 90%, this will make it easier for us to interpret Wm% R. When Wm% closes above its upper pivot line, bulls are strong, but market, as they say, перекуплен. When Wm% R falls below the lower reference line, bears are strong, but market перепродан.
Overbought and oversold
In an overbought condition, Wm% R rises above its upper support line, and the price closes near the upper border of the range. This may indicate a market top and Wm% R gives a sell signal. Oversold condition market Wm% R falls below its lower pivot line and the price closes near the lower border of the range. Such a picture may indicate the bottom. market and Wm% R gives a buy signal.
During the lateral market overbought and oversold signals work very well. but, when market included in the trend, using these signals can be dangerous. With a strong rally, Wm% R may remain near the top of its range for a week or longer. This overbought value may actually represent strength market, not an erroneous downward signal, which submits Wm% R in such circumstances. Vice versa, with a strong downtrend, Wm% R can remain in the oversold zone for a long period of time, thus showing weakness, not a purchase opportunity.
For these reasons, Wm% R overbought and oversold readings should only be used after, how did you identify the main trend. Here, where we absolutely need the first screen in системе торговли three screens. You must use the first screen, to install, what is the current long term market – бычий или медвежий.
If your long-term chart indicates bullish market, accept only buy signals from your shorter-term indicator Wm% R and do not go short, when he gives a sell signal. If your weekly chart indicates bearish market, short only, when Wm% R gives you a sell signal, but don't open up, when Wm% R becomes oversold.
Failed swing
When Wm% R is unable to rise above its upper support line during the rally, but turns down in the middle of this rally, there is a figure called "failed swing": bulls are especially weak and a sell signal appears. When Wm% R stops falling in the middle of a decline, never reaching the bottom reference line, but instead it starts to rise, the opposite failed swing occurs: bears are very weak and a buy signal appears.
Divergences
The final important situation in understanding Wm% R concerns the divergences between price and Wm% R. These divergences are rare., but they signal the absolute best trading opportunity. Медвежья дивергенция происходит, when Wm% R rises above its upper reference line, then falls and cannot rise above the top line during the next rally. It shows, that the bulls are losing strength, what market, probably, will fall and that you should sell short and place a protective stop above the last high of the price.
По контрасту, bullish divergence occurs, when Wm% R falls below its lower reference line, then rises, and when the price makes a new low, the indicator cannot go below this line again. In a bullish divergence trader open up and place a protective stop below the last low of the price.
Third screen
Систему торговли three screens perfectly illustrated by the analogy with the ocean. The first screen of the system indicates a long-term perspective and shows the current market. Second screen, represented by an oscillator, identifies a mid-term wave, which goes against the tide. The third screen reduces the system to its shortest time frame, recognizing ripples, which moves in the direction of the current. These are short-term intraday price movements, which precisely define the entry points for your buy or sell order during the day.
Lucky for those of us, who are tired of interpreting charts or technical indicators on the first and second screens, the third screen does not require any additional technical talent. Instead of this, the third screen gives us the opportunity to place stop orders, whether it is to buy or sell, depending on, what the first and second screens tell us.
Precisely speaking, on the third screen we use trailing buy stop in an uptrend and trailing sell stop in downtrends. When the weekly trend (identified by the first screen) growing, and the daily trend (identified by the second screen or oscillator) Reduced, place a trailing buy stop, to catch a breakout to the top. Когда недельный тренд направлен вниз, and daytime – up, trailing sell stop will help us capture a breakout downward. Each situation deserves a more detailed consideration..
Trailing by stop technique
When did you define, what is long term (недельный) the trend is moving up and your mid-term (дневной) the oscillator goes down, trading system three screens activates the trailing buy stop technique. To do this, place a buy order one tick above the previous day's high.. Then, if the price goes up, a long position will open automatically at that moment, when the rally exceeds the previous day's high. If, but, the price will continue to decline, your buy stop order will not be affected.
This technique allows you to open a position, if short-term ripples show sufficient momentum, to send a wave for more current. The by-stop is therefore closely related to, that majority Traders calls an investment in momentum. but, use of all three screens in our системе торговли provides a much more detailed and refined picture market, than the simple concept of momentum in general.
If you want to make fuller use of the trailing buy stop technique, then you can lower your buy order the next day to a level one tick above the last price bar. Reduce buy-stop every day, until it works (your order will be executed at the best possible time!) or as long as your long term (недельный) the indicator will not reverse, canceling the buy signal (saving you from the loss!). You should, but, carefully control the impulse market and remember to move your buy stop one tick above the last price bar. The process can be delayed, but he guarantees, that you will either open a position at the best price or avoid a bad trade at all, if a market will never go your way.
Trailing sell stop technique
The opposite situation happens, when your long term (недельный) the trend is going down, and at this time you are waiting for a rally on your medium-term indicator (осцилляторе), to activate the trailing sell stop technique. In the trailing sell stop technique, you place a sell order short one tick below the low of the last bar. When market will turn down, a short trade will automatically open for you.
Если же, but, market продолжит расти, You should raise your sell order daily. The trailing sell stop technique is intended, to catch an intraday break down on a daily uptrend. As you can see, this breakthrough will be in the direction of the current market, which in this case is a weekly downtrend.
Trailing buy stop and trailing sell stop techniques complete this, that already within the first two of the three screens is extremely powerful системой торговли. Using less advanced indicators, many beginners traders shift stop orders, trying to catch market momentum. Using a long-term chart and a medium-term oscillator first, You can benefit from short-term ripples market, because you can make better deals, which can only be done within the day.
Stop-loss technique
We still have to discuss, how trading system three screens helps trader, who opened a position, make a profit and avoid significant losses. As elsewhere in trading and investing in general, decision to exit your position, be it long or short, столь же важно, as well as the decision to enter. Система торговли three screens gives you the ability to use the closest stops, as at the entrance, and when exiting a position.
Immediately after the execution of your order to open a long position, you place a stop order one tick below the low of the current or previous trading day, depending on that, which one is below. The same principle works for short selling.. Once you have sold, place a protective stop loss one tick above the high of the current or previous trading day, depending on that, какой из них выше.
To protect against potential losses, move your stop to breakeven, once market move towards you. If market continues to move into profit, you should move the stop loss like this, to keep 50% achieved profit.
The importance of stop loss
Stop orders, used when exiting a position, in this system are located quite close, thanks to the fundamental flow market. If you have opened a position, using analysis tools системе торговли three screens, and the price immediately moved against you, probably, market has undergone a fundamental change in flow. You could be wrong when identifying a likely long-term trend market on the first screen and enter the deal, what is the third screen used for, at that very moment, when the long-term trend changes. Although the three-screen system cannot identify this state, trader can prevent losses with a close stop loss.
If your position turned out to be wrong, it's always better to get out early and take the loss as soon as possible. Accept a little loss, and then sit and watch, что происходит на Market. With experience, understanding will come: if a market really changed the long term direction, in the future it will be easier for you to identify such situations.
Conservative and aggressive exit strategies
All of the above was for a conservative exit strategy for risk averse Traders. Holding the closest stop loss possible, консервативные traders can easily go long or short on the first strong signal from the system and stay in the position all the time, while the main trend lasts. As soon as the trend reverses, profit will be fixed. If market will unfold earlier than expected, trader will be stopped without big losses.
More active traders, maybe, it will be interesting to continue watching Market and after opening a long or short position. As long as the long-term trend is valid, active traders can use every new signal of the second screen (daily oscillator), to add to the original position. This approach brings more profit., позволяя, nevertheless keep close stop loss. Adding to the original position while the trend continues is often referred to as position pyramid..
Finally, short trader can take profit, using signals of the second screen. Worth remembering, that the second screen identifies the mid-term wave, which goes against the larger stream. Using the same second screen indicator, which is used before entering the trade, short trader can take advantage of intraday reversals market, to exit the deal. If, for example, short trader uses the stochastic as the oscillator of the second screen, he can sell the entire position and take profit, when the stochastic rises to 70 %. Then trader can re-examine the first screen of the system, check the direction of flow market and go down to the second and third screens in search of a new purchase opportunity (или продажи).
Output
The article demonstrates, what trading system three screens of Dr. Alexander Elder – not the easiest means of identifying buying and selling opportunities on рынках. System, but, is one of the most powerful means of combining a number of separate useful indicators into one overarching whole. Time, which you will spend on reading this article and familiarizing yourself with the system components, undoubtedly, will contribute to the success of your trading.
Jason Van Bergen
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Based on materials from www.kroufr.ru
