Structure your Entry, a suggestion

coffee-cup.gifYears ago, when I was reading Alexander Elder’s Trading for a Living: Psychology, Trading Tactics, Money Management, the triple screen idea caught my attention. I thought it was a great idea for my swing trading. The basic idea is to have a broader view of your trading time frame, looking at the bigger picture before considering your entry.

Since beginning of this year, OK my dummy trading 2.0, I have been using this concept. I always have 3 screens on my chart, for example NQ futures. I called these three screens Sentiment screen (the longest time frame), Value screen (intermediate time frame), and Entry screen (the shortest time frame). Again, I am not illustrating my trading setup, because, it is irrelevant to anybody. Instead I will give an brief explanation of this structure setup.

Sentiment Screen
This is a screen with the longest time frame among the three. In this screen, you need to have your own method, be it a moving average or your very own Magic Index to determine the direction of trend and current sentiment of the market that you are trading. For example, if we have a very bullish view in Sentiment Screen, we do not want to go short. It is either Long or no trade.

You should spend some time to find the right method for yourself to determine bullish/bearish sentiment and determine a trend. No free lunch, do your own research.

Value Screen
This screen is having a shorter time frame than Sentiment Screen. How short is shorter? Up to you. Do your research. It can be 3x shorter or even 5 times shorter. No absolute answer. Here , I am looking for the best value to enter a position. For example, you might be looking for price to trade near support level, moving average or bollinger band etc. For example, if you are trading breakout, then you might want to see a congestion in this screen. If you are considering joining a trend, you might want to wait for a bounce from pull back in this screen.
In this screen, we decide if it worth to establish a position. I don’t want to see price exhaustion in this screen.

This screen keeps me disciplined from chasing a trade. When price runs away in this screen, I do not want to establish a position.

Entry Screen
This is the shortest time frame. In this screen, I am looking for entry spot , be it a dummy spot or chart patterns etc. The most important thing to remember here is, I am only interested in entry spot in the direction of Sentiment screen.

Of course, this is not all. This structure setup only helps in refining entry signal. There are different ways to incorporate stop loss. Stop maybe setup according to the chart in Value screen or Entry Screen. Again, this is subject to your own research.

Stephane from The Chart Strategiest applies the similar approach that I have described here, though there are differences. Check out his blog. He trades both commodity and index futures. It is good to see how he trades.

Just another piece of study that I have done to improve my trading.

About Gav

A Father, Husband, Trader, and Blogger. A serious coffee addict. Started trading since 2005, trades Futures and FX.

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Comments

  1. Very good post Gav !! You know how to explain clearly your trading concepts and I can only confirm that your description fits well my own Swing Trading. Have a great week !!

  2. Very good post Gav !! You know how to explain clearly your trading concepts and I can only confirm that your description fits well my own Swing Trading. Have a great week !!

  3. Thanks Stephane. I really like to read your trades. Keep it coming. And , of course, have a great week ahead!

  4. Thanks Stephane. I really like to read your trades. Keep it coming. And , of course, have a great week ahead!

  5. I also latched onto the triple-screen idea after reading Elder’s books, but wasn’t able to make it stick as part of my routine. I use two timeframes instead of three, partially because I don’t have enough screen real-estate for three, and partially because glancing at three charts slows down my reaction time. But, it’s a similar concept, and I do think it keeps me out of trouble (keeps me from buying right as the stock runs into long-term resistance, for instance).

  6. I also latched onto the triple-screen idea after reading Elder’s books, but wasn’t able to make it stick as part of my routine. I use two timeframes instead of three, partially because I don’t have enough screen real-estate for three, and partially because glancing at three charts slows down my reaction time. But, it’s a similar concept, and I do think it keeps me out of trouble (keeps me from buying right as the stock runs into long-term resistance, for instance).

  7. @Richard: I guess it is a little bit easier for futures trader to apply this method since we are focusing on a limited number of contracts. I certainly understand how tough it could be when you need to flip through a list of stocks.

  8. @Richard: I guess it is a little bit easier for futures trader to apply this method since we are focusing on a limited number of contracts. I certainly understand how tough it could be when you need to flip through a list of stocks.

  9. Good point Gav. This method would not be applicable for stocks since it does not allow for an easy screening. This is the reason why I limit my trading to 5/6 futures markets.

  10. Good point Gav. This method would not be applicable for stocks since it does not allow for an easy screening. This is the reason why I limit my trading to 5/6 futures markets.

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