A Complete Guide to Alexander Elder's Triple Screen Sell Setup

The Art of the Short Sale

Short selling, the act of selling a security that you do not own in the hope of buying it back at a lower price, is a effective tool in a trader's arsenal. However, it is also a more challenging and riskier endeavor than buying long. The Triple Screen trading system, with its methodical, multi-timeframe approach, provides a robust framework for identifying and executing high-probability short trades. This guide will walk you through the three screens of the Triple Screen sell setup, providing a clear and actionable roadmap for capitalizing on bearish market conditions.

Screen 1: Identifying the Bearish Tide

The first and most important step in the Triple Screen sell setup is to identify a long-term downtrend. This is the "market tide" that you want to be trading with. To do this, you will use a long-term chart, which is one order of magnitude greater than your primary trading timeframe (e.g., a weekly chart for a swing trader). On this chart, you will use a trend-following indicator, such as the MACD, to gauge the direction of the trend.

A sell signal on the first screen is generated when the MACD histogram is falling. This indicates that the bears are in control of the long-term trend and that you should only be looking for shorting opportunities. If the MACD histogram is rising, you should not be considering any short positions, as this would be trading against the dominant market tide.

Screen 2: Waiting for the Counter-Rally

Once you have identified a long-term downtrend on the first screen, the next step is to wait for a temporary rally, or "counter-rally," in the market. This is where you will find the most favorable entry points, allowing you to sell into the downtrend at a premium. To identify these rallies, you will use your primary trading timeframe (e.g., a daily chart) and an oscillator, such as the Force Index or the Stochastic Oscillator.

A sell signal on the second screen is generated when the oscillator rallies into overbought territory. For the Force Index, this would be a move above the zero line. For the Stochastic Oscillator, this would be a move above the 80 level. This indicates that the short-term buying pressure has temporarily exhausted itself and that the market is poised to resume its downward trend.

Screen 3: Executing the Precision Entry

The final step in the Triple Screen sell setup is to execute the trade with precision. To do this, you will use a short-term chart, which is one order of magnitude smaller than your primary trading timeframe (e.g., an hourly chart). The goal of the third screen is to pinpoint the exact moment to enter the trade, and for this, Dr. Elder recommends using a trailing sell stop.

After the first two screens have aligned to signal a shorting opportunity, you will place a sell stop one tick below the low of the previous day's candle. This acts as a confirmation of the trade. If the market continues to move lower, your sell stop will be triggered, and you will be entered into the trade. If the market reverses and moves higher, your sell stop will not be triggered, and you will have avoided a potential loss.

Placing the Stop-Loss and Managing the Trade

Once you have entered the trade, the next important step is to place your initial stop-loss. The stop-loss should be placed at a logical level that invalidates your trade setup. A common approach is to place the stop-loss one tick above the high of the most recent rally. This ensures that your risk is strictly limited and that you will be taken out of the trade if the market moves against you.

As the trade moves in your favor, you can trail your stop-loss to lock in profits. A common technique is to trail the stop-loss above the high of each new lower high. This allows you to ride the trend for as long as it continues, while still protecting your profits.

Profit targets can be set using a variety of methods, such as a fixed risk-to-reward ratio (e.g., 2:1 or 3:1), or by using key support levels as targets. The important thing is to have a clear plan for taking profits before you enter the trade.

By following this methodical, three-step process, you can significantly improve your trade selection and increase your chances of success when shorting the market. The Triple Screen sell setup is a effective tool that can help you to trade with the trend, to manage your risk effectively, and to achieve your trading goals.