Relying on a single indicator or timeframe can lead to conflicting signals and flawed decisions. Trend-following indicators work well in trends but fail in ranges, while oscillators excel in ranges but give premature signals in trends. Alexander Elder's Triple Screen system addresses this by integrating multiple time frame analysis to improve trade timing and filtering, crucial for effective Smart Money Trading.

Video: Understanding the Triple Screen System

This video explains the principles and application of the Triple Screen system for stock and forex trading, combining long-term trend analysis with intermediate momentum and short-term entry triggers using Price Action Analysis.

What is the Triple Screen System?

The Triple Screen is essentially a trend-following system that uses three different timeframes to filter trades and time entries during corrections or pullbacks within the established trend. It only takes trades when signals across the different screens align, enhancing the probability of success.

Step 1: Choosing Timeframes

Select three timeframes with a ratio typically between 1:3 and 1:5. For example:

• Long-Term Investor: Weekly (Long), Daily (Intermediate), H4 (Execution)
• Swing Trader: Daily (Long), H4 (Intermediate), H1 (Execution)
• Day Trader: H4 (Long), H1 (Intermediate), M15 (Execution)

Choose the set that aligns with your trading style and goals. The longest timeframe defines the dominant trend (the "tide"), the intermediate identifies corrections against the tide (the "wave"), and the shortest pinpoints entry points (the "ripple").

Step 2: Selecting Indicators (Flexibility)

Elder originally used MACD (for trend) and Force Index (momentum), but other indicators work well. A common approach:

• Screen 1 (Long-Term Trend): Trend indicator (e.g., Hull Moving Average 100, MACD Histogram slope).
• Screen 2 (Intermediate Momentum/Correction): Oscillator (e.g., RSI, Stochastic) to identify pullbacks ending.
• Screen 3 (Execution Entry): Price Action Analysis (e.g., trendline breaks, candlestick patterns) or a very short-term indicator.

The system is flexible; adapt indicators to your preference while maintaining the core logic.

Step 3: The Trading Process

1. Screen 1 (Identify the Tide): Use your chosen trend indicator on the longest timeframe to determine the dominant market direction (uptrend or downtrend). Only look for trades in this direction.
2. Screen 2 (Identify the Wave): Move to the intermediate timeframe. Look for corrections *against* the main trend identified in Screen 1. Use an oscillator (like RSI) to signal when this correction might be ending (e.g., RSI moving back above 50 in an uptrend after dipping, or below 50 in a downtrend after rising). Ignore oscillator signals that contradict the Screen 1 trend.
3. Screen 3 (Time the Ripple): Once Screen 1 shows the trend and Screen 2 signals a potential end to the correction, move to the shortest timeframe. Use precise Price Action Analysis (like a break of a counter-trend line, a reversal pattern, or support/resistance confirmation) to pinpoint the exact entry point in the direction of the main trend.

Exit Strategy

The original system doesn't define rigid take-profit levels. A common approach is to use a trailing stop loss based on market structure (e.g., trailing below recent lows in a downtrend, above recent highs in an uptrend) or a volatility-based stop (like ATR). This allows profits to run while protecting capital. Initial stop loss and position size are determined by your risk management rules.

Example Application (Short Trade)

• Screen 1 (Daily): 100 Hull MA confirms a bearish trend (price below MA). Only look for shorts.
• Screen 2 (H4): Price pulls back upwards towards the MA. RSI rises but stays below 50, indicating weak buying pressure within the downtrend. Look for signs the pullback is ending.
• Screen 3 (H1): An upward trendline forms during the pullback. Price breaks below this trendline, providing a Price Action Analysis signal to enter short, aligned with the Daily trend and H4 momentum.

Conclusion: Confluence Across Timeframes

The Triple Screen system provides a robust framework for multiple time frame analysis. By demanding confluence across long-term trends, intermediate corrections, and short-term entry signals, it filters out lower-probability trades and improves timing. While not perfect, it significantly reduces the risk of trading against the dominant market flow and enhances the effectiveness of both indicator-based and Price Action Analysis techniques within a Smart Money Trading context.