The triple screen is a trading strategy first described by Dr. Elder, and as the name suggests it uses three screens or charts to confirm when to trade. He applied it to futures contracts, but it works just as well with CFDs.
The first screen is a long-term trend indicator, and for long trades you want to see that the simple moving average for the last 200 days, the SMA 200, is increasing to confirm that there is an uptrend. Elder’s criteria actually stated that it should be higher than the SMA 200 of ten days previously.
The second screen is used to identify temporary corrections to the long-term trend. It’s based on an intermediate term set of values. This chart has three indicators plotted, the SMA 100, the SMA 15 and an Average Directional Movement Index (ADX). The criteria for this screen is that the SMA 100 must be above its value 10 days previously, similarly to the first screen. The SMA 15 must be above the low, and the ADX must be above its value from 10 days previously. The ADX is included because it provides an indication that the trend is getting stronger.
The third screen is used for timing the trade. It shows the short term pattern, and ensures that you do not buy into a falling market. The formula for entry is that you set a buy stop just above the recent high. The effect of this order is that when the price reaches the buy stop level, the buy order is executed. If the security decides instead to fall in value, then the order to buy is never executed, and you avoid an obvious losing position.
As soon as you enter the trade, you should place a stop loss order and it is suggested that this is 5% below the closing price of the day that triggered the entry. If this is triggered, then the trend has failed and you need to exit the position for a minimum loss.
Another sign that you should exit the trade is if the SMA 100 falls below its value of 10 days previously, showing that the trend is weakening. All being well, you will exit the position in the third manner, which is when you have hit your profit target. It is suggested that this should be 5% greater than the closing price of the entry day. As an alternative, you can enter a trailing stop order at 5% less than the price.
As with many trading plans, this relies on establishing that a genuine trend exists, and then choosing a method of entry into the markets which confirms that the trend is continuing. By trading with the trend and putting the odds in your favor, this strategy has a good chance of success, and by using CFDs you maximize your profit potential. The same method can be used to identify short trades, by simply applying all the directions in reverse.