Position size management is a critical component of successful trading and proper risk management. A position that is too large can result in excessive risk exposure, while a position that is too small can limit profit potential. One approach to managing position size is to use multiple moving averages, which can help traders identify trends and potential changes in market direction. In this article, we will explore the Consensio Trading System, a position allocation management system that uses moving averages to align position size with the trend structure of the market.
Moving averages are a popular tool in technical analysis that smooth out price data by calculating the average price of a security over a specific period of time. They can help traders identify trends, as well as support and resistance levels. There are several types of moving averages, including simple, exponential, and weighted moving averages. Simple moving averages (SMAs) are the most common type and are calculated by taking the average closing price of a security over a specific number of periods.
One of the most common ways to use moving averages in trading is to look for crossovers between two or more moving averages. When a shorter-term moving average crosses above a longer-term moving average, it can signal a potential uptrend, while a crossover below can indicate a potential downtrend. The most popular moving average crossover is the "Golden Cross," which occurs when the 50-day SMA crosses above the 200-day SMA, while the "Death Cross" is the opposite, when the 50-day SMA crosses below the 200-day SMA. Moving average crossovers are important trend signals on the market because the shorter-term moving average reacts more quickly to price changes than the longer-term moving average, so a crossover can indicate a change in momentum and trend.
The Consensio Trading System is a position allocation management system that uses moving averages to align position size with the trend structure of the market. The system uses three SMAs (simple moving averages): the 3-period SMA (MA3), the 7-period SMA (MA7), and the 30-period SMA (MA30). The system's entry and exit rules are based on the crossovers of these three moving averages.
When the MA3 crosses above the MA30, the system enters a 30% position size. If the MA7 crosses above the MA30 while the MA3 remains above the MA7, the system enters a 100% position size. When the MA3 crosses below the MA7, but both remain above the MA30, the system reduces the position size to 70%.
Rules of position allocation are the following:
Long 1: MA3 > MA30 > MA7 (30% allocation)
Long 2: MA7 > MA3 > MA30 (70% allocation)
Long 3: MA3 > MA7 > MA30 (100% allocation)
EURUSD Weekly Chart
This EUR/USD weekly chart is a great example of Consensio System giving you signals to increase or decrease your long allocation. You can see how in November the MA3 (yellow) crosses up the MA30 (red) while the MA7 (orange) is still under both of them. This is the Long1 signal - to enter a 30% allocation. Still in November, the MA7 also crosses over the MA30 - indication to Long3 position size. In February the MA3 crosses under the MA7 - which is your signal to decrease your position to Long2. Then in March, as the MA3 turns upwards and crosses over the MA7 you are able to extend into Long3 again. This is how you try to ride the trend and protect your capital from potential turnaround.
One of the key advantages of the Consensio Trading System is its ability to align with the trend structure of the market. By using moving averages to determine position size, the system can potentially improve trading performance by reducing risk exposure during downtrends and increasing exposure during uptrends. Additionally, the system's use of multiple moving averages can provide additional confirmation of trend direction.
Another advantage of the Consensio Trading System is its ability to dynamically adjust position size based on market conditions. This can help traders avoid overexposure during volatile periods and reduce risk during uncertain times.
The Consensio Trading System is a high time frame position management system which has been developed by the late Mr. Tyler Jenks primarily for stock portfolio management on the weekly time frame. Hence the system is providing the best results on higher time frames and preferably on assets that have a trending nature historically.
Further to the structure of the moving averages, traders should also consider the market momentum based on the direction of the individual moving averages. In case for example when the long MA30 is descending, this is a clear signal of a downwards trending market, and the potential long entries should therefore managed with increased care and diligence.
You may also consider using the Chartpunk Momentum Oscillator indicator to monitor market momentum in order to optimize your entries and exits.
The Consensio Trading System is a position allocation management system that uses moving averages to align position size with the trend structure of the market. By using multiple moving averages and adjusting position size based on market conditions, the system can potentially improve trading performance and reduce risk exposure. While it is important to conduct thorough research and backtesting before using any trading system in live trading, the Consensio Trading System offers a unique approach to position size management that may be worth considering.
Chartpunk HTF Trading System Indicator
Our flagship TradingView indicator is based on the Consensio Trading System, and is assisting the decision making process with a bar coloring system which is printing green bars in case of bullish momentum confluence and red bars in case of bearish momentum confluence. Hence our indicator may save you a lot of time when trading the Consensio system by monitoring a number of momentum indicators in the background - even on multiple time frames.
Please note that backtesting and risk management are crucial components to consider before using any trading system in live trading. Backtesting can help traders evaluate the effectiveness of the system on historical data, while risk management ensures that traders have a plan in place to manage potential losses and minimize risk exposure. Properly testing and managing a trading system can help traders make more informed decisions and potentially improve their overall trading performance.
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