Written by Tyler D. Coates / @Sawcruhteez
The content included in this article is not meant as financial advice. It was written to explain the benefits of using a technical indicator to capitalize on trending markets while also managing risk. As such it was critical to compare the outlined approach with the most common alternative. I am no longer a licenced financial advisor and even if I was my opinions should not be construed as facts. Those that choose to purchase EMASAR and / or act on the signals as a result of the information in this article are doing so at their own risk. Past performance does not imply or guarantee future results. Furthermore most individuals will lose money even if using a profitable system because actively investing and / or trading is extremely difficult.
EMASAR (pronounced EMMA-SAR) is a comprehensive indicator with unique settings for investors and traders. It can be used to identify trends, signal entries, as well as to set and trail stop losses. It can also be used to determine position size and signal exhaustion. The signals are derived from the Law of Averages, Tyler Jenks’ Consensio, and Welles Wilder’s Parabolic SAR. EMASAR is a very objective system that is entirely based on algebra.
It was originally developed to capitalize on parabolic runs, specifically in crypto. It does an excellent job at accomplishing that and it also performs well in linear markets. Investor Mode is designed to capitalize on trends and like most (all?) trend following tools it will struggle to provide profitable signals when the market gets stuck in a range. Trader Mode is the only indicator I have found which is consistentlyprofitable intrending markets as well as ranging markets.
Bitcoin Signals: https://www.tradingview.com/x/PjkV9Yz8/
Bitcoin Signals 2:https://www.tradingview.com/x/y4AVWCM4/
ETHUSD Signals: https://www.tradingview.com/x/N5Jjz03g/
ETHBTC Signals: https://www.tradingview.com/x/KsMvZBwm/
S&P Signals:https://www.tradingview.com/x/W9YNINkm/
EMASAR Investor Mode
Investor Mode is preferred for higher time frames and is meant for individuals with longer time horizons, such as those who are primarily interested in managing an IRA / 401K or hedging a hodl. Most people think that the only way to invest is through buying and holding. In fact that is only one of many ways to invest and it is far from the most effective approach. Passive investing is the most basic and common strategy and it is possible to beat this approach through actively investing.
The Law of Averages tells us that what goes up must come back down. Long term investing should be a fine balance between maintaining exposure during bull markets without losing back most, if not all, of the gains during bear markets. However the large majority of financial advisors only know how to do one thing, which is buying and holding a diversified portfolio until the client is ready to retire. Almost none of them will advise selling or hedging when a bull market turns into a bear market, or when returns get overinflated. Instead their only tool for managing risk is to suggest minimizing exposure to volatile assets 5 - 15 years before retirement. Furthermore their only tool for realizing profit is entirely dependent on age, which completely lacks regard for underlying market conditions. The going rate for this service is 1%+ of the account value per year. As a former licenced financial advisor I have first hand experience of the competency that is required and the methods that are taught.
These returns can be easily beaten by buying and holding a no load index fund. This will result in saving / compounding the commission and it will often offer broader diversification as well. Risk can be mitigated approximately ten years before retirement by rolling into a Fixed Indexed Annuity, which offers a reasonable opportunity to beat inflation without any fees or market risk. Anyone can buy and hold until a certain age without implementing a stop loss and anyone can submit the paperwork for a rollover. Consulting a tax professional is necessary but that isn’t necessarily the case when it comes to a run of the mill financial advisor.
Consistently buying and holding (like most do in their retirement accounts) is also referred to as Dollar Cost Averaging. This is an effective approach for those who are not capable of consistently sticking to a technical or fundamental system, while properly managing risk. Nevertheless please do not mistake this for a fool proof approach, which is what many will lead you to believe. It is still very much a bet on a market(s) to go up over a specific period of time, whether it be stocks, bitcoin, gold or beanie babies.
I believe it is possible to consistently beat a buy and hold approach by betting with the trend (despite tax consequences). If done effectively it will result in buying into the early stages of a bull market, fully exiting at the early stages of a bear market then being in a position to re-enter at the early stages of the next bull market. The best approach that I have found is EMASAR.
As with any technical system there will be times where this requires buying back in at a higher price, or selling at a lower price, but the losses should be acceptable because they will allow us to effectively manage risk when the market is in a vulnerable position. Furthermore the average reward should be much greater than the risk. In Bitcoin the reward to risk ratio of 4h EMASAR signals over the past 4 years have averaged 5.55:1.
Consistently beating the market requires a delicate balance of strike rate (average win to loss ratio) and risk:reward (average loss compared to average win). In general helping one has the undesired consequence of hurting the other. Systems with more than a 3:1 reward to risk ratio will generally have a strike rate below 50%. That is reasonable as long as the net imbalance is in favor. If 60% of entries lose $1 and 40% of entries win $3 then we should expect to net a positive return over ten trades.
It is very rare for a system to combine a 50%+ strike rate with a reward to risk ratio that is 3:1 or better. These are highly coveted systems and they are the only ones that I would use to risk my own capital. I am only aware of four comprehensive systems that fit into this category: Classical Charting Patterns, Ichimoku Cloud, Consensio, and EMASAR. I have extensive experience with each and based on my research / experience the latter is in a league of its own with a strike rate above 60% and an average reward to risk ratio that is better than 5:1.
As a result EMASAR is the most effective tool that I have found for identifying the trend as well as for signaling entries and exits. Investor Mode will never catch exact tops or bottoms but it will consistently capitalize on 80% - 90% of the trends that occur in crypto as well as traditional markets. Furthermore it will consistently avoid getting stopped out on the traps that are so common in markets with relatively small capitalization (like Bitcoin).
Signals are clearly and simply illustrated on the chart. Investor Mode will plainly indicate exactly when and where to buy or sell. Alerts can be set for the signals which means one can effectively manage positions without needing to consistently monitor charts or news on a daily basis. In fact being overly attached to a market(s) / position(s) can be counterproductive and will often make it much harder to stick to the signals.
The goal is to be diligent without being attached. Investor Mode requires an ability to execute signals within 24 hours and the 4h chart will only provide about 1 signal every 6 weeks, on average. Therefore diligence is required with managing alerts and executing signals in a timely manner. If managing long term investments spending more than 15 - 30 minutes per day on a market will put one at risk of becoming overly attached.
Investor Mode signals are clear / simple but executing in real time will prove to be the opposite. Managing money is extremely difficult and that is primarily a result of our cognitive biases as well as our innate dispositions to fear and greed.
Perhaps the best part about the alerts is that they make it relatively easy to program the signals into a bot through Trading View's webhooks. Only a Pro plan is required, which is the cheapest paid option. Those that are unable to effectively execute the signals, while managing risk, may find this to be their best option.
Investor Mode will also indicate the exact amount to enter based on the estimated risk of the signal and the bankroll / risk parameters, which can be adjusted in the settings. Two percent is the maximum risk that should be used, which implies little to no leverage (depending on the timeframe and setup). This can also be displayed in Trader Mode.
EMASAR Investor Mode does not require prior investing or trading experience. It will signal when to enter and exit as well as exactly how much to enter.There are also signals to short during bear markets and individuals who are comfortable short selling will find that those signals can be as effective as the buy signals. The cost is $500 / yr and that will include access to Trader Mode for the rest of 2020. By itself Investor Mode is expected to consistently outperform a buy and hold approach in both bull and bear markets*.
EMASAR Trader Mode
The beta version of Trader Mode was released on May 24th and it is currently only available to individuals who have access to Investor Mode. In my opinion it is the single most powerful tool in capital management. As the creator I am very biased but I do not make that statement lightly. It provides the best combination of risk:reward and strike rate that I am aware of, and it is the only indicator that I have found which will consistently provide profitable signals in trending markets as well as ranging markets. There is also a unique exhaustion indicator built in which is the most effective tool that I have for preemptively identifying reversals (see Exhaustion chart below). In addition it identifies critical levels of horizontal resistance / support which are extremely effective at providing targets, taking profit and re entering (see Horizontals chart below). When combined with the rest of EMASAR the horizontals are also very effective at distinguishing between real reversals and fakeouts. Furthermore it is equally effective across all assets and all time frames from the 5 second up to the 1 week (provided that there is enough history).
Investor Mode only signals on breakouts (whether real or fake). It will never catch exact tops or bottoms but it also won’t miss out on major trends due to the formula used to generate the signals. Trader Mode is meant for entering during counter trend corrections (buying dips in bull markets or shorting bounces in bear markets) then quickly taking profit before looking for opportunities to re-enter. It is very important to understand that Trader Mode will be at risk of missing out on major moves when price corrects without entering the buy or sell zone (see Trader Mode S&P chart below). This won’t be too common but it can and will happen. The tradeoff is that Trader Mode can catch tops / bottoms (see Trader Mode Bitcoin charts below) which provides an even better risk:reward than Investor Mode and amazingly it doesn’t necessarily detract from the strike rate (stats will depend on rules used, there are dozens of effective approaches to Trader Mode).
Investor Mode requires a relatively small time commitment for managing positions because the signals are rare. It also doesn’t require a comprehensive background in Technical Analysis. Conversely Trader Mode requires diligently managing positions on a day to day or minute to minute basis (depending on the timeframe). A strong background in technical analysis isn’t required, as long as the user understands risk management, however even individuals with extensive trading experience will need to commit a significant amount of time to learn the unique zones and what they are signaling (~2 - 4 hours). Those who want to go beyond the basics will need to spend much more time learning the advanced concepts (50 - 100+ hours).
I strongly prefer Trader Mode myself and it is what I use to trade my personal account. However the preferred approach will differ based on objectives and availability. Those who are not wanting, or able, to spend hours every day managing positions will be best suited for Investor Mode. Ditto for individuals who prefer to enter during breakouts opposed to corrections. On the other hand I am confident that those who spend the time / energy to learn Trader Mode will find it to be one of, if not the, most effective indicators available.
Charts
Investor Mode
Bitcoin Investor Signals: https://www.tradingview.com/x/PjkV9Yz8/
Bitcoin Investor Signals 2:https://www.tradingview.com/x/y4AVWCM4/
ETHUSD Investor Signals: https://www.tradingview.com/x/N5Jjz03g/
ETHBTC Investor Signals: https://www.tradingview.com/x/KsMvZBwm/
S&P 500 Investor Signals:https://www.tradingview.com/x/W9YNINkm/
Trader Mode
Terms:https://www.tradingview.com/x/hpVuenhJ/
Bull Trend:https://www.tradingview.com/x/B0E5Svrn/
Bear Trend:https://www.tradingview.com/x/SEsdJtoZ/
Purgatory:https://www.tradingview.com/x/9b7WCNrF/
Exhaustion: https://www.tradingview.com/x/AiABnlGP/
Horizontals: https://www.tradingview.com/x/B2BUPN6d/
Recent Bitcoin Trader Signals (4h):https://www.tradingview.com/x/ittiLKjH/
Recent Bitcoin Trader Signals (5m):https://www.tradingview.com/x/mIWt3EXH/
***https://www.tradingview.com/x/KEN1hGu4/
Recent S&P Missed Trader Signals (15m): https://www.tradingview.com/x/3TxjJhZn/
*Past performance does not guarantee future results
Written by Tyler D. Coates / @Sawcruhteez