Trading Strategy "Three Screen A. Elder" is the most famous and popular not only among currency speculators and traders of other financial and commodity markets. The principles of this strategy have been developed by Alexander Elder in the mid 80's. last century, and has since been used quite effectively when trading various financial instruments. However, the very popular strategy has earned three screens in the Forex market.
Chief, the basic principle of the strategy is that the analysis of the current situation in the Forex market and the decision to enter into commercial transaction carried out on the three tests (screens). It was only after three confirmations can enter the market, which significantly increases the probability of a correct decision. The uniqueness of the system of trading signals "three screens" and the ease of its development turned this strategy into decent tool trader who just need to learn.
The basic principles of the "three screens A. Elder."
The strategy involves the study of the forex market in three tests or three screens. Each screen is a stand taken time slot with its own set of technical analysis tools. This system allows you to use the full range of technical analysis of the Forex market: trend indicators, oscillators, graphics, shapes, etc. The genius of this method is that it allows the trader to combine all the positive qualities and benefits of each of these tools of analysis: trend indicators allow to monitor the trend, oscillators can warn about the reverse of the dynamics of quotations, graphic figures clearly show the overall picture of the Forex market.
The creator of this method, Alexander Elder, by association, all financial markets compared with the ocean. Like the ocean, in all markets, there is ebb and flow, that is, upward and downward trends (in large time scales). Further reduction of timeframes in the Forex market, respectively presented as tidal waves and ripples on the waves. That is, the tide can be divided into several waves and the wave itself to a series of ripples.
Method created by this approach to the market, has a distinct advantage, because on it conducted a comprehensive analysis of the trend and not a single timeframe. Traders who work with the same time scale, have a narrow view of the Forex market and can not plan their activities for a few steps forward. At that time, as a fairly simple method of "three screens" significantly expand its field of view, which certainly will prevent improper trading decisions.
Choice of time scale screens.
The choice of timeframes for the three screens is quite simple. The first screen to a larger time interval, the second with an average interval, and the third with the smallest. Each screen is connected with the time scale for the previous and subsequent screen certain factor of 5.
To select the time frames, a trader in the first place to determine which interval would be his "work." That is, at what interval will be opened, edited, and monitored trading. Selected "working timeframe," depending on the type of the overall trading strategy: mid-term, short-term and intraday. After determining the "working timeframe," and he will be the second screen is computed by a factor of 5 the other screens. The first screen will be five times longer, and third, respectively, five times shorter.
For example it looks like this. Trader chose the second screen timeframe 1 hour (H1). Consequently, the first screen will be five times longer to achieve this is a four-hour schedule (H4). The third screen - one hour divided by 5, we get 12 minutes, the nearest timeframe - fifteen (M15).
After selecting the time scale of their screens, you can begin to set them up on his trading terminal, which greatly facilitates the use of this method.
The main objective of the "first screen" - the definition of the dominant dynamics of the Forex market, the trend is in the direction of which will be trading. For this purpose, the technical trend indicators showing the existing trend . In the original version of "three screens Elder" is used MACD-Histogram. This indicator helps to determine the direction of the dynamics of quotations from the difference between adjacent columns: if the previous column is higher than the next - the trend is down and vice versa.
But the use of the standard indicator is not required. In the terminal window, which displays the "first screen Elder" can use any trend indicators in combination with oscillators, which can give the upcoming market reversal. For adherents of the graphical method, you can also add and graphic shapes.
What tools of technical analysis will select a trader is not so important. Index - to identify the prevailing trend and strength.
Second screen.
The main objective of the "second screen" - the definition of the wave, going against the tide. That is, in a shorter time frame to look for corrective movement for a more favorable entry Forex. In an uptrend on the first screen you have to buy on the downward movement in the second screen, and vice versa.
As standard, the use of recommended the following oscillators which need to determine overbought or oversold market: Elder-ray, Strength Index, stochastic or Williams% R.
However, the trader may define the entry point, using the more familiar or better (in his opinion) the tools of technical analysis.
The third screen.
According to the "third screen" is defined ripples going through the waves of the tide. It uses only the dynamics of prices, without indicators, and other analysis tools.
After the first and second screens by switching input sought a third signal received by «Trailing» - Shimmy trading order.
If we have a buy signal, you should put Trailing Buy-Stop at a short distance from the high of the previous candle (bar). And vice versa - the top-down signal expose Trailing Sell-Stop below the previous candle (bar).
After the pending order is to wait when it will work and be profitable. If your terminal does not support Trailing, pending orders that need to monitor in real time. In the case where the price goes in the other direction, and they do not work - you need to change the values manually as long until you get a position.
The strategy of "Three screens A. Elder" gives unambiguous and clear trading signals, causing the trader to work only in the direction of the prevailing trend, which is the basic rule of all speculation - trend is you friend. At the same time, this method gives a clearer picture of the state of the market and the most comprehensive look at the possible development of the situation.