Triple Screen Method: Trading With The Trend: Commodities
Note that this is not a trade recommendation but simply illustration of a particular approach. There are multiple reasons that I wouldn't execute this particular idea at this time, but those considerations are for another post.
Those of you who have followed my work for the last few months know that I prefer simple. The triple screen chart perspective is precisely that. A quick, down and dirty trade filtering system that can help traders with their decision process. Even after decades of active trading, it's not often that I take a meaningful trade without taking at least a quick glance, if not at the triple screen, then at least at the trend of higher degree. Happily, it only takes a moment in TradeView to set up a work space. Importantly the setup is fractal (robust across time frames), robust across markets, and it works with simple momentum oscillators and moving averages. Since my personal preference is to derive the trend through the tape, I only use the oscillators as a quick confirmation to the trend. Less experienced traders can default to the trend as defined by the oscillators.
· Trades are filtered by the trend of one higher degree. The monthly trend filters weekly perspective trades. Weekly trend filters daily, daily filters hourly, hourly filters 15 minute, and 15 minute filters 5 minute. Time periods are not sacrosanct. You should modify them to reflect your trading style.
· A daily perspective buy signal would generally be rejected if the weekly trend was bearish, but could be executed if the weekly trend was rising, flat or ranging. You may extend the same logic up and down the time scale.
· If the trend in the higher degree isn't in harmony, find a different market to trade. The beauty of being a multi asset trader is that you can always find a candidate somewhere.
· The very best trades often occur when all three perspectives are in harmony. For instance, a daily long trade setup has a much better potential when the weekly and monthly trends are in harmony.
· Finally, like everything else in trading, except for risk management, there is a time and a place to ignore the filters. If you have extreme conviction in a trade and you have a solid risk management plan, take the trade. Part of the journey is learning to recognize those nexus points when conditions and sentiment are right to enter counter trend trades.
Goldman Sachs Commodity Index:
After identifying a potential trade, load the symbol into the triple screen template. If the potential trade is in the daily perspective (as in this example) load daily, weekly and monthly charts. Begin with the longest time perspective and work your way lower to the perspective in which you are considering the trade. In this template I use a simple 14 period RSI and a 21 period exponentially smoothed moving average, but almost any momentum oscillator and moving average combination will work.
The daily chart appears to be under re-accumulation and may be setting up a bullish breakout. Each decline has been met with strong buying at consecutively higher levels, price volume behaviors are consistent with accumulation, price is attempting to clear the top of the consolidation pattern and there is reasonable upside potential before the next resistance. Assuming the market met the rest of my buying tests, including liquidity considerations (which I doubt this one does), and the risk reward potential fit my risk management framework, I would consider tactics that would allow me to build a long position.
However, before taking a deeper dive I would take a step back and load the symbol into the triple screen.
Monthly: The trend is undeniably higher and there are few signs that it is in immediate danger of ending.
· In a sign of strength, price moved above the top of the trend channel and stayed that way for the better part of four months.
· Dips to test the top of the channel have repeatedly uncovered demand.
· The oscillator, in this case a simple RSI, became overbought in September 2021, dipped slightly and then pushed to a new high.
· There are no momentum divergences.
· The moving average is also trending higher.
· While the trend appears somewhat overextended there are no overtly bearish behaviors evident.
Weekly: Another strong uptrend that appears to be on the verge of reestablishing momentum.
· The overbought condition that had accrued in late February has been relieved via lateral movement.
· The initial dip found support at a very high level.
· The higher supports and flat top across the consolidation suggests accumulation.
· This chart in in harmony with the chart of one higher degree.
With the monthly, weekly and charts in harmony I would begin working my way through the rest of my analytic and risk management tests and screens. Remember though, for a daily perspective trade the most important level of conformation is at the weekly level. The strength in the monthly chart is simply a bonus.
I also generally ask myself if the trade generally makes sense given my world view? But while having a fundamental underpinning for a trade is nice, it’s not a requirement. Sometimes it’s all about the pattern and momentum, particularly in the shorter time frames.
Notes: In the Trading View setup it’s easy to synchronize the symbol and the crosshair. My preference is to synchronize the symbol but not the drawings or time period.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
Those of you who have followed my work for the last few months know that I prefer simple. The triple screen chart perspective is precisely that. A quick, down and dirty trade filtering system that can help traders with their decision process. Even after decades of active trading, it's not often that I take a meaningful trade without taking at least a quick glance, if not at the triple screen, then at least at the trend of higher degree. Happily, it only takes a moment in TradeView to set up a work space. Importantly the setup is fractal (robust across time frames), robust across markets, and it works with simple momentum oscillators and moving averages. Since my personal preference is to derive the trend through the tape, I only use the oscillators as a quick confirmation to the trend. Less experienced traders can default to the trend as defined by the oscillators.
· Trades are filtered by the trend of one higher degree. The monthly trend filters weekly perspective trades. Weekly trend filters daily, daily filters hourly, hourly filters 15 minute, and 15 minute filters 5 minute. Time periods are not sacrosanct. You should modify them to reflect your trading style.
· A daily perspective buy signal would generally be rejected if the weekly trend was bearish, but could be executed if the weekly trend was rising, flat or ranging. You may extend the same logic up and down the time scale.
· If the trend in the higher degree isn't in harmony, find a different market to trade. The beauty of being a multi asset trader is that you can always find a candidate somewhere.
· The very best trades often occur when all three perspectives are in harmony. For instance, a daily long trade setup has a much better potential when the weekly and monthly trends are in harmony.
· Finally, like everything else in trading, except for risk management, there is a time and a place to ignore the filters. If you have extreme conviction in a trade and you have a solid risk management plan, take the trade. Part of the journey is learning to recognize those nexus points when conditions and sentiment are right to enter counter trend trades.
Goldman Sachs Commodity Index:
After identifying a potential trade, load the symbol into the triple screen template. If the potential trade is in the daily perspective (as in this example) load daily, weekly and monthly charts. Begin with the longest time perspective and work your way lower to the perspective in which you are considering the trade. In this template I use a simple 14 period RSI and a 21 period exponentially smoothed moving average, but almost any momentum oscillator and moving average combination will work.
The daily chart appears to be under re-accumulation and may be setting up a bullish breakout. Each decline has been met with strong buying at consecutively higher levels, price volume behaviors are consistent with accumulation, price is attempting to clear the top of the consolidation pattern and there is reasonable upside potential before the next resistance. Assuming the market met the rest of my buying tests, including liquidity considerations (which I doubt this one does), and the risk reward potential fit my risk management framework, I would consider tactics that would allow me to build a long position.
However, before taking a deeper dive I would take a step back and load the symbol into the triple screen.
Monthly: The trend is undeniably higher and there are few signs that it is in immediate danger of ending.
· In a sign of strength, price moved above the top of the trend channel and stayed that way for the better part of four months.
· Dips to test the top of the channel have repeatedly uncovered demand.
· The oscillator, in this case a simple RSI, became overbought in September 2021, dipped slightly and then pushed to a new high.
· There are no momentum divergences.
· The moving average is also trending higher.
· While the trend appears somewhat overextended there are no overtly bearish behaviors evident.
Weekly: Another strong uptrend that appears to be on the verge of reestablishing momentum.
· The overbought condition that had accrued in late February has been relieved via lateral movement.
· The initial dip found support at a very high level.
· The higher supports and flat top across the consolidation suggests accumulation.
· This chart in in harmony with the chart of one higher degree.
With the monthly, weekly and charts in harmony I would begin working my way through the rest of my analytic and risk management tests and screens. Remember though, for a daily perspective trade the most important level of conformation is at the weekly level. The strength in the monthly chart is simply a bonus.
I also generally ask myself if the trade generally makes sense given my world view? But while having a fundamental underpinning for a trade is nice, it’s not a requirement. Sometimes it’s all about the pattern and momentum, particularly in the shorter time frames.
Notes: In the Trading View setup it’s easy to synchronize the symbol and the crosshair. My preference is to synchronize the symbol but not the drawings or time period.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
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