Quote from Overflow:
Hi everyone, I have just read a book by Dr Elder called Trading for a linving and I liked it a lot, I am currently trying to implement his tripple screen trading system in my own trading and I am also writing a new analysis/trading software that will implement it.
What I would like to know is how good you here at this forum think that the tripple screen system is? Is it outdated perhaps? Since it relys on longtime trends as the first screen it might not "fit" todays volatile markets? Thank you for any input on this subject, as I want to make the most of my software things like this seems good to know.
It is, IMO, the very best book for a new trader to be reading. But like any trading book, put attention on the big picture and not so much the details.
In the case of Triple Screen, the main take-away here is to reference the larger timeframe when trading on a smaller timeframe. The specific applications of this will vary depending on your strategy, but the principle remains the same.
Also, as I recall, Elder deals mostly with technical indicators. But in many cases you may use an indicator for a longer timeframe, and price action for the shorter. In other words, it isn't all about indicators. But it IS all about thinking in terms of what is happening with the bigger picture when you enter a trade.
As a simple example, consider that you may want to go long on a stock that has just pulled back. You are watching it intraday on 5 min charts. Would it help to also be aware of what has happened on daily charts prior to today? Yes, it would, absolutely. Weekly charts? Possibly, depending on how long you plan to hold the trade.
And as an extension beyond that, would be also be helpful to be aware of what is happening, and what has happened lately in the broader market? Definitely yes.
So Elder's point is a very good one. Most price action happens in a context. And that context is typically (1) What's happened lately with that stock to identify a valuable setup that might lead to a good entry, and (2) What's happened in the overall market that might have contributed to the setup and others like it?
Every good system has a logic behind it. Ask yourself what is the context? WHY is this happening? What can I learn from it? Is it statistically valid? Elder is asking us to keep that in mind, and understand that developing systems isn't about just blindly crunching numbers and putting faith in computer output.
In regard to your question about volatility, the same principle applies. Measures of volatility, such as VIX or TrueRange, can impact your setups and entries, just as much as a longer timeframe chart of price. In many cases, you will need to adjust your system parameters based on volatility. So here again, everything is in context. Price action is always in the context of the wider world of the market.
Look again at the example of buying into a pullback. If the market was flat, at very low volatility, would you be looking at different levels of price for a possible entry, as compared to a highly volatile market? Of course you would. No mystery. It just makes sense. And if a stock itself was experiencing temporary volatility compared to normal fluctuation, might that impact your entry target? Yes, it would. It is all context. The big picture.
Look first at the forest, then at the trees. That's all Elder is suggesting.
