Comprehensive Trading Strategy - Consensio
Updated
Disclaimer: If you are primarily interested in copying other people’s trades then this is not for you. However, if you are willing to put in the work that it takes to learn how to trade for yourself then you have found the right place! Nevertheless please be advised that you can give 10 people a profitable trading strategy and only 1-2 of them will be able to succeed long term. If you fall into the majority that tries and fails then I assume no responsibility for your losses. What you do with your $ is your business, what I do with my $ is my business.
Identify Time Horizon
First and most important is identifying the time frame that you want to trade. I primarily trade the daily chart using Tyler Jenks’ Consensio. It was designed to capture long term trends. If followed it will ensure that you do not miss out on a trend and it will also get you out before it fully reverses.
“We want 90% of the cookie” -Tyler Jenks
There will be times when we cost ourselves a small amount of opportunity but that will be peanuts in comparison to the larger trends that will be captured.
Even though it was designed for higher time frames (TFs), specifically the weekly, it can still be used on smaller TFs based on your understanding and time availability. Decisions need to be made each time a candle closes, therefore you need to be available, or out of all positions, every time that happens.
I trade the daily chart because I know that I will be available every day for the candle close. I also like to trade the stock market, commodities, and FOREX as well as crypto because the daily closes are staggered throughout the afternoon and it gives me time to manage my positions.
If you prefer to day trade then this strategy can be used for the 1m - 1h candles. However it doesn’t seem to be too conducive to anything above 1h, if trading 24/7 markets.
For example: if trading the 4h then will not have enough time for position to develop before going to bed.
Regardless of what TF you select you can zoom out to determine longer term trends, however you should only use one TF for making decisions.
For example: I trade the daily chart and will zoom out to the weekly when I am looking for major reversals. However, if the price is signaling entries on the weekly then that is irrelevant because I make decisions based on the daily chart.
Identify Trend
“The purest form of Consensio is three Moving Averages without the price” -Tyler Jenks
Once you know what time frame you are going to trade then you need a reliable way to identify the trend. I have found Consensio to be the single most powerful tool for recognizing trends (as well as signaling entries, exits and reversals).
It is a system that seems very simple on the surface and potentially even unoriginal. However the deeper you dig the more you will uncover.
To start you need to go to the source directly:
Consensio - A New Trading System
Deep Dive Into Consensio
The notes that I have on it span well over 100 pages and I couldn’t possibly sum that all up in this post. Nevertheless I will attempt to cover the most important parts of the puzzle.
Important: Watch the videos above or else below will not make sense.
I have four subcategories for trending markets that are somewhat similar to Elliott Waves.
1) Short, medium and long term trend all in alignment. For bull trend: price > Short MA > Medium MA > Long MA (Strong trend)
2) Minor Correction (Small pullback moves against overall trend)
3) Major Correction (ABC type of correction that forms lower high but finds support at major boundary levels - Long MA, horizontal or trend line)
4) Potential Reversal (Price closes below long term MA and starts turning it over)
The moving averages should be dialed in to your specific time frame to help identify each subcategory above. When the asset is in a strong trend you want to see the Short Term MA act as support / resistance. A close above / below the Short Term MA indicates a minor correction. When there is a minor correction you want the Medium Term MA to act as support / resistance. A close above / below the Medium Term MA indicates a major correction taking place. When there is a major correction that doesn’t quite reverse the trend then you want the Long Term MA to act as support / resistance. A close above or below the Long Term MA indicates a potential reversal. If in a strong trend then expect price to quickly react from the Long Term MA and continue the trend.
For example: in a bull market the long term MA should act as strong support / provide a strong bounce. If it doesn't and the price closes below it instead then that is an indication that the bull market is getting exhausted.
When the Long Term MA starts to show signs of a reversal then I will add a Longer Term MA (default is 200) and / or I will zoom out to the weekly chart. This really helps me to understand if it is just a major correction within a market that is still trending or if a full on reversal is to be expected.
Being able to distinguish major corrections from reversals is the hardest part about consistently beating the market in the long run. Once you are comfortable with that then it mainly comes down to patience, discipline and diligence in regards to acting on signals and managing risk.
Entry & Exit Signals
5% when Price crosses Short Term MA (default is 4)
10% when Price crosses Medium Term MA (default is 9)
15% when Short Term MA crosses Medium Term MA
20% when Medium Term MA turns over (if it was trending down, then watch for it to turn up)
25% Price cross Long Term MA & Long Term MA flattens / turns over
25% Golden Cross with the Medium Term MA & Long Term MA
If multiple happens at once then sum the %’s.
For Example: P close < S & M MA then enter 15%.
If I am not in position then price crossing MA’s would trigger entries. If I am in a position then it would trigger exits. In rare cases I will flip my position by exiting a short and immediately entering a long, or vice-versa.
Entries and exits are done as soon as possible after the candle closes. I trade the daily chart so I will wait for the daily candle to close before making decisions and then I will try to make sure I get filled within 30 minutes (will take a market order if necessary). If you try to front run the candle close then you will make more mistakes than it is worth. It is very important to only make decisions after the candle closes. Everything else is noise and you cannot make decisions based on noise.
I may pass on signals if it would enter me against a longer term trend.
For Example: Price closes above Short Term and Medium Term MA’s and they cross over in a bullish manner. 30% - 50% long entry signaled. May choose to pass if Long Term MA is bearish.
I can completely pass on this entry in favor of waiting for a short if the price is below the Long Term MA and the Long Term MA is in a strong bear trend. In this case I will expect Long Term MA to act as strong resistance and will wait for price to close back below shorter term MA’s to trigger a short entry.
It takes time to reverse a trend. In the above example the Long Term MA is in a strong bear trend while price appears to be rallying through it after 50% long entry is signaled. I would pass on long entries and be very confident that the price isn’t going to blow right through my Long Term MA (due to the downward angle).
It very well might reverse the trend, however that will take time. If the price is above a Long Term MA that is angled down then the MA will act as a magnet for the price until it flattens / turns over.
Passing on the first long entries that are signaled does not mean that I will pass up on it all together, it just means that I think it is too early / risky. I would strongly prefer to wait for a golden cross with the Long Term MA flattened, or angled up, to go ahead and fully enter. In the example above I would wait for a pullback to the Long Term MA. If it supports above and gets a golden cross with the Medium Term MA then I would be much more inclined to take that entry.
It is very important to understand the difference between opportunity cost vs capitalizing on a loss. As traders we need to be completely comfortable with missing out on opportunity and extremely diligent about avoiding / minimizing losses. Therefore it is okay to pass on possible entries that are less than ideal however it is not okay to pass up on exits that feel similar.
Stop Losses & Risk Management
I determine my position size and leverage based on the amount of risk that I would be assuming. If an entry is triggered then I will use the Parabolic SAR or the Bill Williams Fractal to determine my risk.
If SAR is too tight then I will use the Fractal. I use the medium and long term MA’s to determine what is or is not too tight. Prefer stop to be above long term MA but has to be above medium MA.
I am trading Consensio, and it does not allow for stop losses in this manner. Instead it demands that you hold onto a position through the candle close and that you scale out in pieces (see above 'Entries & Exits'). This is best in 99%+ of the time.
However that really limits the leverage that can be used. If trading the daily chart 3X - 5X would be the absolute max. I tend to prefer 5X - 10X leverage for a number of reasons:
-Minimizes exchange risk
-Can minimize slippage
-Still gives me plenty of flexibility to place stop above prior Fractal / SAR
Below shows an example entry triggered and my thought process for where to place the stop along with a risk / leverage calculation.
Once I understand the risk, then I can calculate the position size. You should always think of risk as the amount you stand to lose opposed to exposure amount. I do not care about the exposure amount. I care about how much I stand to lose... how much I am risking. I care about controlling my downside and limiting it to less than 2% of my trading capital.
In the above example the risk is 7.10% and the max leverage is 14.08%. I never use the max leverage because getting liquidating comes with significantly higher fees. In this case I would use 10X or less leverage and I would make sure to set a market stop loss below the liquidation price.
If you get liquidated then it will likely be a ~22% fee. If you take a market stop before the liquidation triggers then it will be a ~2% fee.
I currently like to cap my risk at $500 per trade. $500 (USD I wish to risk) / 0.071 (calculated risk based on wick above Fractal) = $7,042 (exposure)
$7,042 is my maximum exposure. With 10X leverage $704.20 is the most I will need for margin. Once I understand my position size, leverage and margin requirements then the position size can be easily calculated based on the Entry & Exit Signals above.
Trailing Stop Losses
I consider myself 100% entered when I have $500 at risk. If the price moves in my favor then I will trail the stop loss. If I trail it to the point where it is at break even, or better, then I will not consider myself fully entered anymore.
Even though I still have the full original exposure, I am no longer assuming any risk and the latter is all that matters to me. Therefore I would feel comfortable adding to my exposure up until the point where I am risking another $500.
In the example above we get a great entry before a strong trend starts (also happened to follow descending triangle breakdown which provided great confirmation). The price quickly moves in our favor to the point where the stop is adjusted to break even, or very close to it.
With no risk I do not consider myself to be fully exposed anymore and I feel comfortable adding to my position up to an amount that would risk $500. Need to be very careful with this because adding to a profitable position after a big move can completely ruin your trade.
I will use the TD’ Sequential, RSI and Average Directional Index to confirm that the trend still has room to go. I will also check horizontals and trends to make sure I’m not selling support / buying resistance. In the example above I would really like adding because all of the above are in my favor.
This can be thought of as manual unbalancing which is the opposite of how most people approach allocating capital.
Automatic rebalancing will sell the most profitable positions and add to the lesser profitable positions in order to keep the same allocation percentages.
For example: if allocations are 50% Apple and 50% Amazon then Amazon outperforms. It will be something like 45% Apple and 55% Amazon. Rebalancing would sell Amazon and buy Apple so that it is 50:50 again.
I have always thought that is completely backwards. I want to allocate my capital to the best performing assets. If I am in a position that is really moving in my favor then I am thinking about adding to it. I would never take away from a more profitable position to add to a lesser profitable one just for the sake of balancing my portfolio.
Conclusion
What is outlined above is enough to ensure that you do not miss out on a trend and it also ensures that you will get out before it fully reverses. Don’t take me word for it, go do some backtesting yourself. That is when the power of Consensio will really come to life.
When trying out a new strategy I always recommend to start with an extremely small amount of money that is > $0 and I also recommend zooming in.
I think that it is very important to have some skin in the game so that you feel the pain and pleasure of losing and winning. However I think that is should be very nominal. If you have a $10,000 trading roll then I would take $100 and trade the 3m chart. Focus on learning the intricacies and making sound decisions. Also focus on ROI and how long it takes to generate 10%, 50% or 100%+ returns opposed the dollar amount being returned.
Regardless of what time frame you decide to trade I would always start with a very small TF. The reason is that the daily / weekly charts could take years to teach what the 3m and 5m charts can teach in days.
The decision making process should be exactly the same regardless of the TF. There are a ton of variables and intricate situations that you can put yourself into by trading small TF’s. Thinking your way through these situations is how you internalize and gain confidence in the trading system as well as the decision making process.
Facing these situations before you have significant money on the line is what I consider batting practice.
“We don't rise to the level of our expectations, we fall to the level of our training.” -Archilochos
After a couple weeks of trading the shorter TF’s I felt comfortable putting significant money to work on the Daily chart. However, I consider myself a fast learner and that process could take longer for others.
Identify Time Horizon
First and most important is identifying the time frame that you want to trade. I primarily trade the daily chart using Tyler Jenks’ Consensio. It was designed to capture long term trends. If followed it will ensure that you do not miss out on a trend and it will also get you out before it fully reverses.
“We want 90% of the cookie” -Tyler Jenks
There will be times when we cost ourselves a small amount of opportunity but that will be peanuts in comparison to the larger trends that will be captured.
Even though it was designed for higher time frames (TFs), specifically the weekly, it can still be used on smaller TFs based on your understanding and time availability. Decisions need to be made each time a candle closes, therefore you need to be available, or out of all positions, every time that happens.
I trade the daily chart because I know that I will be available every day for the candle close. I also like to trade the stock market, commodities, and FOREX as well as crypto because the daily closes are staggered throughout the afternoon and it gives me time to manage my positions.
If you prefer to day trade then this strategy can be used for the 1m - 1h candles. However it doesn’t seem to be too conducive to anything above 1h, if trading 24/7 markets.
For example: if trading the 4h then will not have enough time for position to develop before going to bed.
Regardless of what TF you select you can zoom out to determine longer term trends, however you should only use one TF for making decisions.
For example: I trade the daily chart and will zoom out to the weekly when I am looking for major reversals. However, if the price is signaling entries on the weekly then that is irrelevant because I make decisions based on the daily chart.
Identify Trend
“The purest form of Consensio is three Moving Averages without the price” -Tyler Jenks
Once you know what time frame you are going to trade then you need a reliable way to identify the trend. I have found Consensio to be the single most powerful tool for recognizing trends (as well as signaling entries, exits and reversals).
It is a system that seems very simple on the surface and potentially even unoriginal. However the deeper you dig the more you will uncover.
To start you need to go to the source directly:
Consensio - A New Trading System
Deep Dive Into Consensio
The notes that I have on it span well over 100 pages and I couldn’t possibly sum that all up in this post. Nevertheless I will attempt to cover the most important parts of the puzzle.
Important: Watch the videos above or else below will not make sense.
I have four subcategories for trending markets that are somewhat similar to Elliott Waves.
1) Short, medium and long term trend all in alignment. For bull trend: price > Short MA > Medium MA > Long MA (Strong trend)
2) Minor Correction (Small pullback moves against overall trend)
3) Major Correction (ABC type of correction that forms lower high but finds support at major boundary levels - Long MA, horizontal or trend line)
4) Potential Reversal (Price closes below long term MA and starts turning it over)
The moving averages should be dialed in to your specific time frame to help identify each subcategory above. When the asset is in a strong trend you want to see the Short Term MA act as support / resistance. A close above / below the Short Term MA indicates a minor correction. When there is a minor correction you want the Medium Term MA to act as support / resistance. A close above / below the Medium Term MA indicates a major correction taking place. When there is a major correction that doesn’t quite reverse the trend then you want the Long Term MA to act as support / resistance. A close above or below the Long Term MA indicates a potential reversal. If in a strong trend then expect price to quickly react from the Long Term MA and continue the trend.
For example: in a bull market the long term MA should act as strong support / provide a strong bounce. If it doesn't and the price closes below it instead then that is an indication that the bull market is getting exhausted.
When the Long Term MA starts to show signs of a reversal then I will add a Longer Term MA (default is 200) and / or I will zoom out to the weekly chart. This really helps me to understand if it is just a major correction within a market that is still trending or if a full on reversal is to be expected.
Being able to distinguish major corrections from reversals is the hardest part about consistently beating the market in the long run. Once you are comfortable with that then it mainly comes down to patience, discipline and diligence in regards to acting on signals and managing risk.
Entry & Exit Signals
5% when Price crosses Short Term MA (default is 4)
10% when Price crosses Medium Term MA (default is 9)
15% when Short Term MA crosses Medium Term MA
20% when Medium Term MA turns over (if it was trending down, then watch for it to turn up)
25% Price cross Long Term MA & Long Term MA flattens / turns over
25% Golden Cross with the Medium Term MA & Long Term MA
If multiple happens at once then sum the %’s.
For Example: P close < S & M MA then enter 15%.
If I am not in position then price crossing MA’s would trigger entries. If I am in a position then it would trigger exits. In rare cases I will flip my position by exiting a short and immediately entering a long, or vice-versa.
Entries and exits are done as soon as possible after the candle closes. I trade the daily chart so I will wait for the daily candle to close before making decisions and then I will try to make sure I get filled within 30 minutes (will take a market order if necessary). If you try to front run the candle close then you will make more mistakes than it is worth. It is very important to only make decisions after the candle closes. Everything else is noise and you cannot make decisions based on noise.
I may pass on signals if it would enter me against a longer term trend.
For Example: Price closes above Short Term and Medium Term MA’s and they cross over in a bullish manner. 30% - 50% long entry signaled. May choose to pass if Long Term MA is bearish.
I can completely pass on this entry in favor of waiting for a short if the price is below the Long Term MA and the Long Term MA is in a strong bear trend. In this case I will expect Long Term MA to act as strong resistance and will wait for price to close back below shorter term MA’s to trigger a short entry.
It takes time to reverse a trend. In the above example the Long Term MA is in a strong bear trend while price appears to be rallying through it after 50% long entry is signaled. I would pass on long entries and be very confident that the price isn’t going to blow right through my Long Term MA (due to the downward angle).
It very well might reverse the trend, however that will take time. If the price is above a Long Term MA that is angled down then the MA will act as a magnet for the price until it flattens / turns over.
Passing on the first long entries that are signaled does not mean that I will pass up on it all together, it just means that I think it is too early / risky. I would strongly prefer to wait for a golden cross with the Long Term MA flattened, or angled up, to go ahead and fully enter. In the example above I would wait for a pullback to the Long Term MA. If it supports above and gets a golden cross with the Medium Term MA then I would be much more inclined to take that entry.
It is very important to understand the difference between opportunity cost vs capitalizing on a loss. As traders we need to be completely comfortable with missing out on opportunity and extremely diligent about avoiding / minimizing losses. Therefore it is okay to pass on possible entries that are less than ideal however it is not okay to pass up on exits that feel similar.
Stop Losses & Risk Management
I determine my position size and leverage based on the amount of risk that I would be assuming. If an entry is triggered then I will use the Parabolic SAR or the Bill Williams Fractal to determine my risk.
If SAR is too tight then I will use the Fractal. I use the medium and long term MA’s to determine what is or is not too tight. Prefer stop to be above long term MA but has to be above medium MA.
I am trading Consensio, and it does not allow for stop losses in this manner. Instead it demands that you hold onto a position through the candle close and that you scale out in pieces (see above 'Entries & Exits'). This is best in 99%+ of the time.
However that really limits the leverage that can be used. If trading the daily chart 3X - 5X would be the absolute max. I tend to prefer 5X - 10X leverage for a number of reasons:
-Minimizes exchange risk
-Can minimize slippage
-Still gives me plenty of flexibility to place stop above prior Fractal / SAR
Below shows an example entry triggered and my thought process for where to place the stop along with a risk / leverage calculation.
Once I understand the risk, then I can calculate the position size. You should always think of risk as the amount you stand to lose opposed to exposure amount. I do not care about the exposure amount. I care about how much I stand to lose... how much I am risking. I care about controlling my downside and limiting it to less than 2% of my trading capital.
In the above example the risk is 7.10% and the max leverage is 14.08%. I never use the max leverage because getting liquidating comes with significantly higher fees. In this case I would use 10X or less leverage and I would make sure to set a market stop loss below the liquidation price.
If you get liquidated then it will likely be a ~22% fee. If you take a market stop before the liquidation triggers then it will be a ~2% fee.
I currently like to cap my risk at $500 per trade. $500 (USD I wish to risk) / 0.071 (calculated risk based on wick above Fractal) = $7,042 (exposure)
$7,042 is my maximum exposure. With 10X leverage $704.20 is the most I will need for margin. Once I understand my position size, leverage and margin requirements then the position size can be easily calculated based on the Entry & Exit Signals above.
Trailing Stop Losses
I consider myself 100% entered when I have $500 at risk. If the price moves in my favor then I will trail the stop loss. If I trail it to the point where it is at break even, or better, then I will not consider myself fully entered anymore.
Even though I still have the full original exposure, I am no longer assuming any risk and the latter is all that matters to me. Therefore I would feel comfortable adding to my exposure up until the point where I am risking another $500.
In the example above we get a great entry before a strong trend starts (also happened to follow descending triangle breakdown which provided great confirmation). The price quickly moves in our favor to the point where the stop is adjusted to break even, or very close to it.
With no risk I do not consider myself to be fully exposed anymore and I feel comfortable adding to my position up to an amount that would risk $500. Need to be very careful with this because adding to a profitable position after a big move can completely ruin your trade.
I will use the TD’ Sequential, RSI and Average Directional Index to confirm that the trend still has room to go. I will also check horizontals and trends to make sure I’m not selling support / buying resistance. In the example above I would really like adding because all of the above are in my favor.
This can be thought of as manual unbalancing which is the opposite of how most people approach allocating capital.
Automatic rebalancing will sell the most profitable positions and add to the lesser profitable positions in order to keep the same allocation percentages.
For example: if allocations are 50% Apple and 50% Amazon then Amazon outperforms. It will be something like 45% Apple and 55% Amazon. Rebalancing would sell Amazon and buy Apple so that it is 50:50 again.
I have always thought that is completely backwards. I want to allocate my capital to the best performing assets. If I am in a position that is really moving in my favor then I am thinking about adding to it. I would never take away from a more profitable position to add to a lesser profitable one just for the sake of balancing my portfolio.
Conclusion
What is outlined above is enough to ensure that you do not miss out on a trend and it also ensures that you will get out before it fully reverses. Don’t take me word for it, go do some backtesting yourself. That is when the power of Consensio will really come to life.
When trying out a new strategy I always recommend to start with an extremely small amount of money that is > $0 and I also recommend zooming in.
I think that it is very important to have some skin in the game so that you feel the pain and pleasure of losing and winning. However I think that is should be very nominal. If you have a $10,000 trading roll then I would take $100 and trade the 3m chart. Focus on learning the intricacies and making sound decisions. Also focus on ROI and how long it takes to generate 10%, 50% or 100%+ returns opposed the dollar amount being returned.
Regardless of what time frame you decide to trade I would always start with a very small TF. The reason is that the daily / weekly charts could take years to teach what the 3m and 5m charts can teach in days.
The decision making process should be exactly the same regardless of the TF. There are a ton of variables and intricate situations that you can put yourself into by trading small TF’s. Thinking your way through these situations is how you internalize and gain confidence in the trading system as well as the decision making process.
Facing these situations before you have significant money on the line is what I consider batting practice.
“We don't rise to the level of our expectations, we fall to the level of our training.” -Archilochos
After a couple weeks of trading the shorter TF’s I felt comfortable putting significant money to work on the Daily chart. However, I consider myself a fast learner and that process could take longer for others.
Note
Since writing this post I have altered my stop loss strategy & forgot to amend the post. I will use what is outlined to calculate my expected risk / leverage however I no longer use market stop loss orders at that price. This is for a couple of reasons:
First and foremost I want to avoid getting stopped out on a wick, I want to wait for the candle to close.
Note
I also used to trade in alt coins with low liquidity and was all too used to getting flash liquidated / stopped out. Therefore I would also set a market stop to avoid liquidation fee. Now I am going with slightly less leverage and only trading in markets with sufficient liquidity. If I start losing significantly more than expected then I will probably change back. Once position is in profit then I will use a trailing stop loss for only a portion of my position, generally 30% - 50% and follow Consensio for the rest.
Note
AbbreviationsP = Price
S MA = Short term MA (I prefer the 4 day)
M MA = Medium term MA (I prefer the 9 day)
L MA = Long term MA (I prefer the 33 day)
L L MA = Long, long term MA (I prefer 200 day)
BS = Buy signal (S MA making bullish crossover with M MA)
SS = Sell Signal (S MA making bearish crossover with M MA)
GC = Golden Cross (M MA making bullish crossover with L MA)
DC = Death Cross (M MA making bearish crossover with L MA)
GGC = Golden, Golden Cross (L MA making bullish crossover with L L MA)
DDC = Death, Death Cross (L MA making bearish crossover with L L MA)
TF = Timeframe of the chart (W, D, 4h etc)
emasar Indicator is available for purchase at alphanalysis.io/product/emasar/
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.