Dr. Alexander Elder's Triple Screen

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Dr. Alexander Elder's Triple Screen

The Triple Screen trading system was developed by Dr. Alexander Elder and has been in use since 1985. It was first presented in the April 1986 issue of Futures Magazine.

The Triple Screen combines trend following methods as well as counter trend techniques and analyzes all potential trades in several time frames. More than a trading system the Triple Screen is a style of trading.

If this scan is of interest to you it is strongly recommended that you purchase and review Dr. Elder's books for a complete description. You my purchase either or both books directly from the publisher by clicking on the following links:

The Triple Screen begins by analyzing the long-term chart first. Most traders only pay attention to the daily charts with everyone watching the same few months of data. If you begin by analyzing the weekly chart first your perspective will be much different. This first screen uses the slope of the weekly MACD Histogram. When the slope is up it shows that the bulls are in control, when the slope is down it shows that the bears are in control. A single up tick or downtick on the weekly MACD Histogram indicates a change of trend. The upturn that occurs below the centerline and the downtick that occurs above the center line give better signals.

When reviewing the signals you can add other indicators to help determine and identify the major trend such as the Directional Movement system or the slope of the 26 week exponential moving average. You can use most trend following indicators as confirmation, as long as you analyze the weekly trend first.
Screen One: Identify the weekly trend using a trend following indicator such as the 26 week EMA and trade only in the direction of the trend.
The second screen identifies the wave that goes against the tide. When the weekly trend is up, declines on the daily charts are buying opportunities. The second screen uses oscillators, when the weekly trend is up, take only the buy signals from the oscillators and ignore the sell signals. The force index and Elder/Ray are good oscillators but you can also use Williams %R or Stochastic for instance. When the weekly MACD Histogram rises, the 2-day EMA of the Force Index, gives buy signals when it falls below its centerline, as long as it does not fall to multi-week lows. When the weekly MACD Histogram declines, Force Index gives shorting signals when it rallies above its centerline, as long as it does not rally above multi-week highs.

When the weekly trend is up, the daily Elder/Ray gives a buy signal, when the Bear Power declines below zero and then up-ticks back up toward the centerline. When the weekly trend is down, daily Elder/Ray signals to short when Bull Power rallies above zero and then ticks back down.
Screen Two: Apply an oscillator to a daily chart Use daily declines during weekly uptrends to find buying opportunities and daily rallies during weekly downtrends to find shorting opportunities.
The third screen does not require a chart or an indicator. It is a technique for entering the market after the first and second screens gave a signal to buy or sell short. The third screen is called the trailing stop technique. Caution: if using a trailing stop to sell short make sure it is a stop with a limit so you do not get hurt in a fast market.

When the weekly trend is up and a daily oscillator declines, it activates a trailing stop technique. Place a buy-stop just above the previous day's high. If prices rally you will be stopped in long automatically. If prices continue to decline your buy-stop will not be touched. Lower your buy-stop each day in the same manner until stopped in or until the weekly indicator reverses and cancels the buy signal.

Chart Examples:

The Daily Triple Screen Scan

Unlike the other trading system scans, the Triple Screen will not give absolute buy and sell signals and it will require some research and chart examinations. Below the image of the scan, I will explain the columns and give the formula for each for you techies out there.

Elder Long/Short --> This is not an actual position but worthy of looking at the position. If the MACD Histogram's slope is rising AND the daily force index is below zero it is presented as long, but really means worthy of investigation. If the MACD Histogram's slope is declining AND the daily force index is above zero, it is presented as a possible short.
Force Index =2-Day Exponential Moving Average of (Volume times(today's Close-yesterday's Close)
26 Week EMA --> If the direction of the 26 week EMA is in alignment with the previous column it will print UP or DWN depending upon whether the position is Long or Short. A blank cell means that the direction of the 26 week EMA is opposite the direction of the Signal, i.e. signal=Long - 26 week EMA is down or at least inconclusive. The reverse is true for shorts.
Bull Power/Bear Power --> If the position is Long AND Bull Power is greater than zero AND Bear Power is less than zero it will print UP. If the position is Short AND Bear Power is greater than zero AND Bull Power is less than zero then this will print DWN. Other wise the combination of Bull/Bear Power is currently not in agreement with the position column, i.e. blank cell.
Bull Power = High - Exponential Moving Average of the Close x days ago --> we are currently using 13 being the Fib freak I am.
Bear Power = Low - Exponential Moving Average of the Close x days ago --> we are currently using 13.
One Month Range --> The highest value minus the lowest value of trading of the last 20 traing days. Scan requirement is greater than 5, you might want to look at higher ranges of 10 lets say.
Historical Volatility --> This is a rather complex formula but for the techies here it is: 50-Day moving average of (Standard Deviation(log(today's close/yesterday's close)times 100*16 (the square root of 256 approximately a years worth of trading)
Look for greater than 40. Chart Link --> will take you to stockcharts.com displaying a weekly chart with a 26 week ema and the MACD Histogram. Change to daily chart or change indicators and update the chart if you so desire.
Fundamental Data Link --> will take you to MSN's stock scouter with the fundamental information on that stock.

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