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|Wednesday, February 13, 2002 - 11:36 pm:||
A bit more on Triple screen. Not a bad system all round. Elder says identify the trend on the weekly, then go to the daily and take daily entry signals only in the direction of weekly trend.
Daily entries are when price does a temporary pullback against the main trend, and consequently a momentum based oscillator,(e.g. Stochastic) falls into the bottom (oversold) zone, then gives a buy signal as it pulls upward out of that zone. Problem is that if the trend is strong, the pullbacks in the price action are sometimes insufficient to drop Stochastic into the bottom zone, so it doesn't give a buy signal.
How to get around this problem?
1. Ignore the oscillator as a buy signal...its not particularly important. If a strong bar in the opposite direction to the pullback occurs, that's an indication that the pullback is finished and the main trend has resumed, so you have a signal to enter or add to your existing position.
2. Put a buy order in just above the last swing high that preceded the pullback. Quite often the buy order will be filled on the strong bar that signals the end of pullback and the resumption of the main trend.
3. Put a horizontal line on Stochastic at the 50% level. Now your rule is that if Stochastic drops under that line, then pulls above it, you have a buy signal. No need for the oscillator to fall right down into the bottom zone.
Elder names several weekly trend identification methods. The simplest of them all is the slope of a 13 week Exponential MA. 13 weeks X 5 trading days per week = 65 days. So you can use a 65 day EMA on the daily to identify the trend, then enter in the direction of the trend according to one of the above mentioned entry methods.
Elder doesn't mention sector analysis.
But its a good idea to always know what sector a stock is in before you take a trade. Examine weekly sector charts, and use Triple Screen on stocks that are in strongly bullish sectors.
To buy a stock in a bearish sector is to swim against the current......not smart.
|Thursday, February 14, 2002 - 12:37 pm:||
To me Triple Screen crystallizes the key elements in a trading strategy:
1) Trade with the trend
2) Buy/sell signal
3) Using trailing stops to time your entry - only buy when prices are going up.
When switching from weekly to daily indicators - you are losing some of the smoothing effect achieved by grouping 5 days into a single bar. You can compensate for this by applying a filter (eg. two successive days change in MA direction).