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Study Guide for The New Trading for a Living by Dr. Alexander Elder

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SEVEN

Trading Systems

  1. Answer 7-1: C (I, II, III, and IV)

    Trends may point in different directions at the same time in different timeframes: for example, up on the daily chart but down on the weekly, or vice versa. A trend-following indicator may be giving a buy signal, while an oscillator is giving a sell signal, or vice versa. The Triple Screen trading system is designed to manage those contradictory signals.

  2. Answer 7-2: B

    The Triple Screen trading system begins by identifying the trend on a chart one order of magnitude greater than the one you are planning to trade. Find the trend on the weekly chart and then look for entry points in that direction on the dailies. If you begin by analyzing the daily chart and only check the weekly chart later, your eyes will be prejudiced by what you saw on the daily chart. A monthly chart is too far removed from the daily—the timeframes of two charts should relate to one another by a factor of five. A weekly bar contains the data from 5 daily bars.

  3. Answer 7-3: C

    Keeping good records is essential for testing a system. Start at the beginning of your data file and move forward one day at a time, recording each signal and planned actions. Watching signals emerge and gradually deliver paper profits and losses is the closest you can get to real trading without risking money. If you like what you see and start trading that system in your account, keep your positions small. Concentrate on learning how the system works in the real world ...

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