13
2024/05
How experienced traders dominate the markets with the Triple Screen Trading System
The Triple Screen Trading System, which combines trend indicators and oscillators, can reduce the number of false signals to the greatest extent possible and better solve the entry trading signals problem.
However, it must be applied to different time frame charts as these indicators provide conflicting signals when applied to the same time frame chart.
The basic principle behind the Triple Screen Trading System is to enter during price corrections, aligning the trade direction with the long-term potential market trend, thus achieving the goal of “buy low and sell high.”
Trends can be observed on charts at any time, but technical traders categorize the trends into three trend lengths. These three trends are:
- The long-term trend — also referred to as the ‘tide’
- The intermediate trend — also called the ‘wave’
- The short-term trend — also known as the ‘ripple’
The great thing about this system, which trades in the direction of the tides, using waves and ripples to adjust entry points, is that it can adapt to any trading style.
First Screen: Market Tides
The first screen is used to identify the primary market trend, and our trading is also carried out in the direction of this trend. If the first screen shows an uptrend, we only buy; otherwise, we sell.
The MACD indicator is used in the first screen to determine the market’s main trend. If the trend is upward, the indicator value rises; if the trend is downward, the indicator value falls.
Usually, the trading platform automatically calculates the indicator values, and we only need to know whether the MACD histogram is going up or down.
Below is a 4-hour chart: if the MACD histogram is rising, we look for buying opportunities; if it’s falling, we look for selling opportunities.
Second Screen: Market Waves
In the second screen (1-hour chart), we make trading decisions. This screen uses oscillating indicators like RSI to identify overbought and oversold conditions. At this stage, we look for price corrections opposite the primary trend.
In other words, if the first filter shows a declining MACD histogram, we wait for the RSI to reach overbought (value above 70) before selling. If the RSI is oversold (value below 30), we refrain from trading because it contradicts the primary market trend.
Third Screen: Intraday Breakouts
The third screen of the Triple Screen Trading System adjusts entry points. Suppose the first filter indicates a downtrend (gradually falling MACD histogram), and the oscillating indicator in the second filter reaches an overbought (sell signal).
In that case, we look for short-term support levels in the third filter and set sell-stop orders a few points below these support levels, and vice versa.
Conclusion
It’s essential to understand that technical indicators should complement a trading strategy rather than replace it. Before trading, it’s crucial to understand the advantages and disadvantages of each technical indicator.
For example, trend indicators help trend markets, while oscillators are more suitable for range-bound markets.
The Triple Screen Trading System combines trend and oscillating indicators from different time frame charts to filter out opportunities with the highest success rate and trade in the direction of the primary market trend.
For most traders, the practical approach is to focus on a few key indicators, understand their characteristics, and combine them to bring more excellent profit opportunities.
