1. System Name:Themodified Triple Screen trading strategy (Version 1.0 June 01, 2011)
  1. System description, key beliefs, and Discussion:
  1. A trading strategy derived from original work by Dr Alexander Elder in his excellent book “Trade for a Living”, it can be adapted for positions that are held for weeks at a time or days at a time. Under certain circumstances it can be adapted to intraday and swing trading. It can be used in bad markets by finding weak candidates to go short as well as by going long in bull markets.
  2. This was my original bread and butter trading system for intermediate and swing trading which I have adapted over the years to accommodate my shorter-term timeframe. I consider it to be a sound methodology that applies across many markets and can support many different objectives and time frames.
  3. It seeks to buy large caps and broad ETFs that have had a time period of long-term positive trending, followed by an intermediate time pullback to defined support level and a short term price pattern that indicates a resumption of the primary long-term trend.
  4. The system combines technical analysis indicators for trendingness and oscillation. It incorporates price patterns to signal entries.
  5. It incorporates three different time frames in order to ensure you are considering multiple perspectives.
  6. The system relies on the psychology of trend following and the principle of buying on dips (or by selling on bumps).
  7. I have varied the application of Dr. Elder’s ideas to meet my own particular psychology and preferences, but my implementation remains true to the general principles he describes.
  8. I trade this system into different time dimensions:
  9. three time frames considered for short-term: week -- day -- hour
  10. three time frames considered for long-term: months -- week – day
  11. the following table summarizes the main points of the strategy
  1. System logic, concepts and definitions:
  1. “The market” = SPY (the S&P 500 Index; highly correlated to our target trading population). We prefer to trade and instruments that are outperforming SPY in which have a stronger trend as measured by ADX. On the day of entry I prefer to see the target outperforming the market on an intraday basis, however we can still enter on the signal if this is not the case.
  2. Mechanical Entry:
  3. for long-term implementation: .05 above the Setup day’s High
  4. for short-term implementation: .05 above the previous hour’s high
  5. Tentative mechanical Initial Stop:
  6. for long-term implementation: .05 below the Setup week’s low
  7. for short-term implementation: .05 below the setup day low
  8. for either implementation I have all sued traded this with an initial stop calculated as a multiple of ATR
  9. Reward:Risk Ratio = (Target – Entry) / (Entry – Initial Stop)
  10. Maximum Entry = the highest price you can pay and still retain the 2:1 Reward:Risk Ratio.
  11. Tentative Profit target: this must be done by inspection of charts. Here are candidates
  12. Recent swing high
  13. Closing the previous gap
  14. Return to a 50day, or 200 day MA
  15. “Obvious “ resistance levels that can be seen from afar
  16. Anything else that more obviously meets the criteria of “An obvious point for short term or intermediate term traders to cash their profits”
  17. This chart summarizes the main points of the triple screen. It's important to note that technical analysis indicators of the screen have one job to do in their screen . When it's done move on to the next great

This chart summarizes the strategy for the long side, using the (week-day-hour) short term time frame

This chart summarizes my current application of framing the triple screen trading as a short-term opportunity. If I can find a 2 to 1 reward to risk ratio on a simple retest of the previous swing high, I am then prepared to take that and go. I like being surprised with a breakthrough of the previous swing high which carries me into a stronger trend that I'm prepared to take the first leg of the trade as a standalone trade. If the original trade breaks through the previous swing high, then it becomes a candidate for a long term buy and hold position

  1. Trading population:in order of preference
  2. Large liquid ETFs (minimum 100K shares per day)
  3. Large cap US stocks: Dow 30 Industrials, S&P 100, NAS100, S&P 500
  4. US Midcaps: S&P 400 companies
  1. Historical performance:

These results are from actual trades, and my methodology was to be willing to take profits at any sign of hesitation at the retest of the previous swing high. This accounts for the high win rate and the relative short holding period for a trading system, which, with different goals, can very effectively capture longer term trades based on a long term resumption of the primary trend. This is a reflection of my own personal goals and preferences, and so, your mileage may vary.

  1. Setup rules:
  1. Screen one: determining a strong primary trend: I like to use a standard measure of trendiness: ADX greater than 25. At times I have tightened up the requirement to 30 when the signals were too numerous at 25. Elder also offers as an alternative and uptick onMACD-H. I have also found utility and simply using the top 30 strongest candidates in the ETF 2.0 system.
  2. Screen two: major pullback from the primary trend. I like to use a close below the 20 period moving average and /or oversold on Williams%R(10)
  3. Screen three: resumption of the primary trend on tactical timeframe. In the short-term application this means a breakout on the hourly candles; on the longer timeframe this means a breakout on the daily candles or universal entry.
  4. Determine if the trade meets the 2:1 Reward to Risk ratio
  5. Calculate the Tentative Initial Stop, Tentative Entry, and Tentative Profit Target: If that gives you a minimum 2:1 reward to risk ratio, you can frame the trade
  6. Calculate the maximum price you can pay and still retain a 2:1 Reward:Risk Ratio. That way, if you get a gap, you know if you can still buy it.
  1. Entry rules:
  1. If the setup is valid, and Reward:Risk is > 2:1, then enter on entry signal but not higher than the Maximum Entry
  2. Entry conditions remain valid for as long as the set-up rules are valid and the Reward:Risk is in effect.
  1. Exit rules:
  2. Market stops you out:
  3. Initial Stop is hit
  4. Gap open below your initial stop = exit immediately
  5. If trailing stop is hit
  6. Trailing stops: after 2 days of success, convert the initial stop to a trailing stop. Several methods:
  7. Trail by the size of the initial stop
  8. Trail by 1x ATR
  9. Trail by the 2 day low
  10. Pre-emptive harvesting/Profit-preservation exits:
  11. If we have a 3R winner, and it is starting to stall at an expected hesitation point, you are never wrong to cash it, and remain prepared for a Continuation pattern. However, if you want more, then consult the market condition:
  12. If it’s BULL and Shortterm OVERSOLD: Hold
  13. If it’s BULL and Shortterm NEUTRAL or OVERBOUGHT, cash it, and be prepared to resume the trade with the Universal Entry.
  14. If the Market is SIDEWAYS or BEAR, cash the trade
  15. If we have a position that has not hit a stop, but the market (SPY) is crashing all around us, then you can conclude our position is working better than the market. Make a decision:
  16. exit the position favorably, anticipating that today’s market weakness will carry over to our weak trading target (even though today was strong)
  17. Examine SPY market condition state to inform your acceptable level of overnight risk to accept, and adjust your position size accordingly.
  18. Exit on evidence of weakness tomorrow (exposes us to a gap)
  19. Use Elder’s “Noise sensitive exit” to calibrate your overnight risk and adjust your position size accordingly
  20. Use a 2x ATR stop to protect you from the possibility of an adverse gap and adjust position size accordingly
  21. Run “Average True Gap Analysis” and decide on the level of risk you are willing to accept overnight to stay in this position, and adjust your position size so that you do not accept any more risk than the initial trade risk.
  22. The following chart summarizes Alexander Elders advice on exits which I included for completeness as well as an insight from the master trader Chuck LeBeau

  1. Position sizing rules:
  2. Normal calculation to determine number of shares.
  3. I use between .5% and 1% portfolio risk per position
  1. Optional decisions/rules:
  1. To reduce volatility you could take only large cap signals and not midcaps
  2. To operate within a retirement account, you could employ Powershares inverse ETFs to go long on inverse ETFs and actually be taking a short side position.
  3. To try for more profits, you could elect to trail successful trades with a 1x ATR% trailing stop or 3% trailing stop and try to convert this trade into a longer term trend following position.
  4. To reduce trading frequency, you could elect to treat the first signal in an index as a setup and only take the 2d signal.
  5. Intraday traders could elect to try to improve intraday entries and exits through the use of pivot points or other intraday indicators
  6. Aggressive traders could elect to use Powershares leveraged indices to get more volatility out of each trade, when the primary unleveraged index signals.
  7. Futures traders could use these ETF signals as signals to be implemented in the futures markets
  1. Triple screen Continuation (TSC) Pattern Notes.
  2. This is a re-entry trade.
  3. Requires a successful triple screen trade as a setup.
  4. If we have a successful TS trade, and the target makes a swing low higher than the original swing low of the first TStrade, then we can re-enter the trade when we see the Universal Entry (UE).
  5. It does not matter how many days the target sells off, provided it does not make a new swing low.
  6. The Universal Entry is the first white candle that makes a price higher than yesterday’s High.
  7. The Initial Stop is the new swing low made since we exited the successful TS trade.

  1. Preferred brokers: low cost transaction per share is the most important decision criteria for this system. If you are an intraday trader trying for more, then consider slippage and speed of execution as well. Any large deep discount broker should satisfy these requirements.
  1. How to start the portfolio from all cash: Paper trade this for 3 months or until you are comfortable with the number and type of signals you receive, and that you are comfortable that you can respond to the signals and set the buy/sell orders and trailing stops. Consider trading at a reduced equity size with real money at a deep discount broker in order to build confidence and professionalism with real money before increasing size.
  2. Example setup:


  1. Example trade (completed Triple Screen trade)

this is a screenshot of a triple screen filter criteria I have . You can see that I'm using the criteria of ADX greater than 25 and a combination of a close below the 20 day moving average and oversold on Williams %R