PLEASE READ THE FULL DESCRIPTION BEFORE BUYING OR USING THIS INDICATOR!
This strategy was developed with four objectives in mind:
(1) managing risk
(2) protecting from missing out on major moves
(3) maximizing risk:reward
(4) staying in a trending market and taking profit before it fully reverses.
EMASAR does a great job at accomplishing all of the above through the buy and sell signals that are generated. The data provided below is from the signals that occurred on Bitcoin (Bitstamp) from January 1, 2015 to present (November 11, 2019).
(1) Risk is tightly managed, relative to the winners, and losing positions will be exited before the market moves too far against.
The biggest losing trade on Bitcoin, for the time period outlined above, is -18.47%.
(2) Following the EMASAR buy and sell signals guarantees that one will not miss out on a major trend. As a result of the indicators used for this system it is mathematically impossible for a major trend to occur without providing a buy or sell signal. This system will never catch exact tops or bottoms but it will do a great job of capturing ~85% of a trend.
(3) On average the winning trades will be 5.55 times the losing trades. There will be stretches where the losers are bigger than the winners and this could last for many months, maybe even a year. However, over the long run the average reward is expected to be 5.55 times the average risk*.
*Past performance does not guarantee future results!
(4) This indicator was designed to capitalize on parabolic markets, specifically Bitcoin and alt coins. Crypto markets have a tendency to get moving so fast that many indicators become all but useless.
Entries can get signaled too late and exits will get signaled way too early. This is specifically true when using oscillators that are designed to identify overbought or oversold environments. EMASAR does a great job of keeping us in a position for the duration of a trend and this includes the major parabolic runs that Bitcoin has a tendency to go on.
Take a look at the two charts below which illustrates the buy and sell signals that occurred during the 2017 and 2019 parabolic moves. Green = Buy | Blue = Exit | Red = Short
Long signaled at $4,216 on September 29th, 2017
Exit signaled at $15,171 on January 9th, 2018
Long signaled at $3,684 on February 18th, 2019
Exit signaled at $11,201 on July 12th, 2019
When Bitcoin, or other alts, really get moving it can be very difficult to distinguish between a correction and a full reversal. We do not want to be exiting during a minor correction, instead this is a time when we want to be holding on or looking to buy the dip.
This is a very fragile balance. The market has a very strong tendency to make corrections looks like reversals and to make reversals look like corrections. Therefore it is very important to have a tool(s) that you trust to distinguish in between the two.
I believe that EMASAR is the best way to find that balance – if I knew of a better way then I would be using it instead!
Following these signals will help us to hold onto positions while the market is still trending in our favor when most think that it has moved too far / too fast, and it will also get us out before a market fully reverses.
Keep in mind that there will be times when we exit a market that is in danger of reversing, only to buy back higher later on. That is okay because it enables us to properly manage risk during times of uncertainty and buying back in at a higher price is more than worth the cost.
Lets look at the signals above in chronological order:
1) Close Long at $2,597
2) Enter Short at $2,342
3) Close Short at $2,309
4) Enter Long at $2,759
5) Close Long at $3,367
6) Enter Long at $4,216
A long was closed at $2,597 after Signal #1 and was re-entered after Signal #4 at $2,759. Additionally a long was closed at $3,367 after Signal #5 and was re-entered on the following signal at $4,216.
Throughout this 3 month stretch it would have been most profitable to simply buy and hold. However this snapshot does not tell the whole story. Both times that the longs were exited the market was in immediate danger of fully reversing. EMASAR will get us out of markets before they reverse but just because there is a sell signal that does not mean that the market will necessarily reverse from there. It simply means that is the most likely mathematical outcome based on Moving Averages and the Parabolic SAR.
The most important metric is whether or not the signals from EMASAR beat the buy and hold returns over a significant time period. Three months is not a significant time period for Bitcoin but 3 years certainly is.
The signals for Bitcoin, and the other top 10 alts, have been backtested over a significant time period and more often than not EMASAR is beating the respective market by a wide margin. Results from the top 10 coins, as well as a few other fan favorites, have been listed below in order of market cap.
Pay close attention to the exchange that is used because the results will date back to the beginning of those charts. By knowing the exchange you can determine the length of the backtest.
These results can be verified by using the free Strategy Tester*** on Trading View. The results will likely vary because as time goes by new signals will be added to the results. When choosing an exchange to backtest I opted for the exchange with the best combination of volume and duration.
When comparing buying and holding to a strategy the returns need to be compounded. Therefore it is very important to access the properties of the Strategy Tester and set the Order Size to 100% of Equity. This can be done by clicking on the gear icon to the right of ‘EMASAR Strategy’ which can be located in the top left hand corner of the ‘Strategy Tester’ window.
The data below is dependant on longing and shorting. If you only take long signals it has a dramatic impact on the results. If unwilling, or unable, to short then you must disregard the backtesting results below. It is possible to backtest using only long entries with the Strategy Tester. ***link needed*** Under ‘Net Profit’ use only the data listed under ‘Long’ and compare that to the ‘Buy & Hold Return’.
Past performance does not guarantee future results!
Buy & Hold: +3,798.43%
Buy & Hold: +1,389%
Buy & Hold: +12.26%
Buy & Hold: -32.18%
Buy & Hold: +3,342%
Buy & Hold: +99.14%
Buy & Hold: +1,525%
Buy & Hold: +73.1%
Buy & Hold: +4,288%
Buy & Hold: -52.45%
Buy & Hold: -82.11%
Buy & Hold: +251.44%
Buy & Hold: -36.59%
Buy & Hold: -90.36%
Buy & Hold: +273.63%
*losing to the market
Past performance does not guarantee future results!
EMASAR is beating a buy and hold strategy for 13 out of the 15 markets listed above and is beating some markets by a very wide margin (1,000%+). These are the markets we want to focus on when trading with this indicator.
There are examples, such as XMR, that we should avoid even though the signals are beating the market over a statistically significant period of time. Continuing with the example of XMR, the signals from EMASAR are only beating the market by about 300% and that is under perfect conditions.
It is very important to understand that it is almost impossible to replicate results from backtesting in a live environment, specifically for markets that are open 24/7. Executing the buy and sell signals in real time will never result in the same ROI as a backtest and there are a number of reasons for that.
First of all trading is very hard, even when using an indicator that is this straight forward. Often the best signals come when you do not want to take them. For example, you could be convinced that a market is going down further and then you get a buy signal from EMASAR…are you going to be able to execute that and use the same position sizing as you would have if you were convinced that the market was going up from here?
That is exponentially easier in hindsight then it is in real time and will almost certainly takes months or years of experience before developing the emotional control required to execute signals regardless of your personal bias about market direction.
Once / if you get to that point then there will still be many more variables to consider. For example what if you are asleep when the signal occurs and the price moves 5% – 10%+ before you get the chance to execute? What if you are on vacation and the price moves even more than that…do you still execute belated signals or do you risk missing out on a major move?
This will only come with experience and this is the main reason why a private Telegram Group will be established for everyone who owns this indicator. Sharing thoughts with others about real time dilemmas is the best way to learn. Gaining access to this indicator will be as much about learning how to trade as it will be about receiving the proprietary signals.
The biggest risks with trading EMASAR revolve around disobeying the signals. Risk management is built into this system with the exit signals that will occur, however it is up to the individual to execute those signals. Passing on an exit signal could lead to a big loss which would have a dramatic impact on the ROI. Most trading systems will have small and medium losses with small, medium and [i]large[/i] wins. That is exactly how this works. The small – medium losses and wins will mostly be a wash and will account for roughly 80% – 90% of the trades. The large wins will happen about 10% – 20% of the time and will make up 80% – 90% of the profits.
Therefore the two biggest risks are passing on signals entirely, or exiting preemptively. Getting chopped in and out of a market can be quite frustrating. If you become overwhelmed with negative emotions then it could cause you to pass up on the next signal. That signal will often be the one that more than makes up for the small – medium losses that preceded.
On average EMASAR will provide one signal every 6 weeks. Therefore missing one entry could turn an otherwise profitable year into a loser. If electing to trade a system, whether it is EMASAR or another, it is crucial to commit to taking every signal regardless of any outside variable (namely your personal bias about market direction or frustration that follows a losing stretch).
Another major risk with this system is taking too much profit too soon. When getting into a trade that has the potential to be a big winner it can be challenging to continue holding through the swings. Anyone that has watched paper profits vanish will be inclined to start exiting after the market makes a big move in his or her favor.
While this is better than watching profits completely evaporate, this mistake can be enough to turn a profitable system into one that loses to the market. If 80% – 90% of our profits come from 10% – 20% of our trades then it is vital we do not cut those trades off at the knees.
If taking too much profit too soon then you will consistently turn potential large winners into medium winners. This may lead to making money over the long run which will make it very difficult to realize that anything is wrong. However making money and beating the market are two very different things. Exiting early and making money is nearly as big of a risk as missing entries entirely.
If you have the discipline to execute signals in a timely manner after they are triggered and the emotional control to let the winners run despite the appearance of a vastly overbought market, then you should have what it takes to beat the crypto market with EMASAR.
If you are not an experienced trader then it is very important to start out small. The only way to learn is to trade in a live environment and the only way to succeed is to risk much less than you can afford to lose. If you have $2,000 to trade with then start with a maximum position size of $20 – $50 and don’t be shy about scaling that down even further.
Make sure that you read / understand the risks outlined above. If you jump into this without understanding the unique risks that this system entails then you are going to have a bad time.
There are a lot of things that make EMASAR unique but the two most important aspects are that it only works on one time frame and it is meant exclusively for crypto. There are some other asset classes, namely commodities, that EMASAR will outperform by a small margin. Therefore feel free to do your own backtesting in other markets but proceed with extreme caution if EMASAR is not beating the underlying market by 300%+ (I prefer 500%+).
That being said the only time frame that this indicator works on is the 4 hour. It may still beat some markets on the 3 hour or 5 hour but I have not found any examples of where the 3 or 5 hour outperforms the 4 hour.
This indicator was developed around the 4h and that is where it works best. It is for position trading and it does not work on lower TF’s. Adjusting to higher TF’s will also cause for bad results as the entries / exits will be late to the party.