This episode’s guest: Eric, a day trader of a US equity proprietary fund, Twitter @CycleStudies
*All texts are for sharing only and do not constitute any investment advice.
TL;DR
1. About trader Eric
The core of trading is people. A persons experience, background, personality, and financial attributes determine the development of his or her trading strategy.
What is Erics trading strategy?
1) Fund size and allocation: Funds in the tens of millions, most of which will be used to buy spot goods, while there will also be stable returns from the exchange, and some funds will be used to short positions
2) Expected return bearable drawdown: Limit and manage your own risks through technical analysis, and the subsequent returns are to continue to gamble on probability.
3) Trading logic: short-term + trend + fixed investment
Why did Eric develop such a trading strategy?
1) Trading experience
Eric entered the circle in 2017, and his trading experience can be divided into two stages:
In the first stage, before August 2022, I only traded short-term, ignoring the trend, and my daily goal was to earn $700-1000. There were two main reasons for doing short-term trading at that time: first, the cryptocurrency market fluctuated violently, and Eric believed that short-term trading was the fastest way to feel the market; second, when he was not familiar with the crypto market, Eric believed that short-term trading could more efficiently help him judge whether the trading logic was correct, thereby accumulating trading experience.
The second stage, after August 2022, took a year and a half to transition from pure short-term to swing trading, then to trend trading, and then to fixed investment. There are two reasons for the shift to trend trading: first, the expansion of capital volume. As a short-term trader, to a certain extent, you need to have a very precise control of the market, but with the expansion of volume, you are limited by time, energy, and management, and you cannot have precise control, so you need to make some money that makes friends with time; the other is the change in the market environment.
In summary, Erics transition from short-term trading to a combination of short-term trading + swing/trend + fixed investment is mainly due to the expansion of his capital. Eric believes that if you want to control more money, you must continue to expand the boundaries of your trading and have enough understanding of different trading methods. The way to achieve this is to use part of your funds to step on pitfalls, then learn, and finally give yourself the ability to control from the perspective of risk management.
2) Professional background
Eric graduated from the Department of Statistics at New York University. After graduation, he worked in venture capital and looked at the education track. Later, he switched to a US stock proprietary fund as a day trader. Now he runs his own Million Traders community, providing everyone with quantitative tools and trading training.
Who is Erics trading strategy suitable for?
Erics trading strategy, or trading thinking, is suitable for people who are willing to try continuous operation and review. It is meaningless to buy blindly when seeing indicators/signals. The correct path should be to practice and review, such as what framework to use to analyze the market, how to allocate positions, how to control stop losses, etc., to practice deliberately and continuously improve.
2. Eric’s Trading Story
Knowledge verified by practice is true knowledge. Reviewing and looking back on specific transactions can help you understand and learn the application of trading strategies more intuitively.
How to make money with technical analysis?
First some theory to understand:
K-line is just a representation of price within a unit of time. Although it and trading volume are tools that retail traders can use to see market fluctuations at the lowest cost, its role is limited to this and it cannot reflect the so-called institutional costs, counterparties, liquidity, etc.
The main force is a collection of wisdom, or it can be understood as a combined force, and does not correspond to a specific person.
Different schools of technical analysis can explain the market in different time dimensions. Regardless of the school, learning technical analysis does not necessarily mean you can make money. It still depends on how you understand the market and build strategies, whether it is based on quantitative or statistical analysis, etc. Every order of Eric must have statistical advantages.
Speaking of practical operation, for novices, the moving average is the easiest indicator to use:
Trading requires two frameworks: the macro-operation framework and the micro-operation framework. The macro-operation framework is what kind of trend the market is in and what kind of orders you should make with a high probability. The micro-operation framework is to find a more subtle entry point through the nesting of multiple time level windows and some rules and technical indicators.
At the macro-operation level, the moving average can help establish a trend framework. The simplest way is that when the price is above a certain moving average, you should mainly go long, and when the price is below a certain moving average, you should mainly go short. The moving averages commonly used here are EMA 200/MA 200. Under this framework, find a repeatable learning path to continuously iterate the strategy. At the micro-operation level, it is actually to find the key and worthwhile position to play under the premise of limiting the risk, specifically, to stack Buff.
For example: in macro operations, through the channels oversold area, support area, bottom divergence, and small-level EMA support, we can judge that the general direction is to go long, and then in the small time level window, we have accumulated enough bullish buffs, and then further limit our own risks, and finally leave it to probability.
Once again, the moving average is only a framework for a trend, and you need to match it with a strategy if you want to make money in the market. To execute a strategy, you need to imagine yourself as a robot, executing the same logic every time without emotion, where to buy and where to sell. If this logic changes, it will fall into overfitting from a quantitative perspective, and the mathematical expectation will be negative in the long run.
Finally, it should be noted that technical analysis has an upper limit. It is impossible to see the average cost of the banker, as well as the so-called bankers buying, accumulation, distribution, etc. What is needed is some mathematical models to understand what is happening in the market now, but even if you know what is happening in the market, it is impossible to make money every time.
When choosing altcoins, why should we choose the currencies that have gone through the four stages of incubation, breakthrough, outbreak, and exhaustion in the past year?
Eric has a tweet about the framework for selecting altcoins , which mentions that you should choose coins that have gone through the four stages of incubation, breakthrough, outbreak, and exhaustion in the past year. Regarding this logic, Eric explained:
The more standardized the market trends are, the more money you can make. This standard is to go through a complete cycle, namely, brewing, breakthrough, outbreak, and exhaustion.
The brewing process is reflected in the decline of trading volume, the smaller K-line, and basically no short-term price fluctuations. Then suddenly there is a breakthrough, whether it is an upward breakthrough or a downward breakthrough. For example, if it is an upward breakthrough, the speed will be very fast, a positive line directly breaks through the key area of the previous high pressure. After that, the amount of funds in the market is attracted, and the price increase will change from the original reasonable, understandable, and regular rise and fall to rise and rise, fall and fall, which shows that it is already in a stage of outbreak or acceleration. The final exhaustion is that after the outbreak, the price enters an extreme irrational fluctuation, the fluctuation becomes more and more intense, and the leverage becomes higher and higher. Once someone starts to rush and sell, it will form a chain effect, that is, the warehouse bursts and the bubble bursts, and then it becomes a kind of exhaustion. After exhaustion, the price falls, and the explosive growth begins to become a kind of oscillating growth.
This type of target is the focus of funds and has good liquidity, because one of the three major assumptions of technical analysis is that history will repeat itself. The other two assumptions are: 1) The overall trend of the market is moving according to the law 2) The market is all-inclusive, that is, all the news seen is post-positioned, and those who get the news in advance have already made the corresponding trading decision, and then the price is reflected.
What are the steps for a novice to learn trading?
The first step is to measure your own risks. A persons time, energy, and money are all limited, and you must use limited resources to play a difficult game in the market. Therefore, it is best to set a limit on funds and time for yourself before learning to trade, such as how much money to use and how long to play in the market. If you have results within the limited time frame, continue, if not, exit the market.
The second step is to learn, find more teachers with different strategies and methodologies, and see how they make money. Once you have chosen a profitable or favorite trading strategy, you need to analyze the key indicators of the trading strategy.
The third step is to make 100 trades and review them.
Or if you have accomplished something in your daily life, you can transfer the experience of that thing to trading. What is important is the framework.
What is the Stop Doing List?
Always be in awe of the market.
Throughout the conversation, Eric has been emphasizing the importance of taking risks seriously. You cant think about beating the market just because youve made money. During the period when Erics winning rate was 100%, he didnt get more excited the more he traded, but became more and more afraid, fearing that the next order would result in a big loss. The fear and control of risks should always come before the plan of how many times the profit you want to make.
3. Eric’s “Must Read”
The growth of excellent traders is inseparable from continuous external input, learning from other excellent people, and reading content that is meaningful to learn from. We can also continue to accumulate and grow through other peoples [Must Read] lists.
For traders, Eric recommends:
1) Anton Kreil, started trading at the age of 16 and retired at the age of 27. His resume includes Goldman Sachs, Morgan Stanley, and Lehman. His main job now is to train and promote traders for large hedge funds and large investment banks. I recommend everyone to watch his understanding of risk management, market models and money on YouTube. https://www.youtube.com/@InstituteofTrading
2) Warrior trading, the boss is Rose, he made more than 20 million US dollars by doing short-term trading during the pandemic bull market. Eric commented that if you don’t learn anything from him, it only proves that you are a bad person. https://www.youtube.com/@DaytradeWarrior
Both of the above people have enough free, high-quality content to learn from.
3) Mr. Ni can continuously produce high-quality output. His output can provide you with information interpretation of various players in the cryptocurrency market, which has changed Erics bias towards analysts as a trader.
For books, Eric recommends:
The 10,000-Hour Rule, Deliberate Practice, Cognitive Talent
Interview Log
FC
The fact that I started paying attention to you is because a colleague from the second level we interviewed before said that he had signed up for your class and he had to introduce us to each other. Then my first impression of you was actually your profile picture. I don’t know where yours is, but mine was taken when I was skiing in Georgia.
Eric
I took the photo when I was climbing a snowy mountain in China.
FC
I understand. I can tell you like skiing. I have been following you on Twitter for a while. I think you dare to post real trading, at least your daily profit trend. In addition, I was impressed by your recent renovation. You can tell how to buy audio equipment and what kind of audio equipment is good. From this, I can see that you have a path to understand a thing and the logic of learning, so I want to invite you to talk about trading. After getting in touch with you, I recommend you with three keywords: the first is your income, which is obtained through trading; the second is that you have a professional methodology; the third is that others use your methodology and it is really helpful, including the K-line or technical indicators. In fact, I have always outsourced it to others to help me, and I have never seriously understood it myself. The reason is that in 2013, when I asked a friend who bought Bitcoin how to trade, he said, I recommend you a book called Candlestick Moment Chart. I was discouraged after reading the first chapter. It was too difficult. So I want to pick it up again after many years, and I hope you can be a guide for me.
We have 4 parts in total. The first one is to introduce your background. The second one is about your trading growth experience and what growth experience determines your current trading strategy. The third one is to talk about your trading strategy in detail. The fourth one is to talk about your growth and recommend some good content to everyone. Lets start with the first one. Can you briefly introduce your background?
Eric
Hello everyone, Im Eric. Friends who know me call me Boss Wang. I went to the United States to study in 2013. After graduation, I first worked as a venture capitalist, mainly in the education sector, and then I switched to a proprietary fund in the U.S. stock market as a day trader. Now I have my own community called Million Traders, which provides quantitative tools and trading training for everyone, just like when I went to work, I train my students the same way others train me. This is the current situation.
FC
OK. So when did you start working in this industry?
Eric
If I were to talk about it in a broader sense, I actually knew about this thing in 2013. At that time, I had just arrived in the United States. My astrophysics assistant was a Chinese American. It happened that there was no one there that day, so it was just me and him. I chatted with him. We didn’t talk about literature, but politics as usual. Then we talked about Bitcoin. He said he had hundreds of them. This was the first time I knew about Bitcoin. Then in 2017, a friend who worked as a venture capitalist at Zhen Fund asked me if I knew about this thing. I said I did, and he said, take a look at where this thing is, and then I found that the price of Bitcoin has risen to an outrageous level, so strictly speaking, I entered the industry in 2017.
FC
I understand. Lets go directly to your experience. Can you briefly introduce your overall investment strategy now? For example, how big is the fund size? What is the expected return? What kind of risk do you accept? What is its cycle?
Eric
As a trader, all the money you make comes from market fluctuations. The greater the market fluctuations, the more money you can make. In the absence of market fluctuations, no matter what strategy you use, no matter how you dodge and maneuver, you will lose money. So I caught up with the market, and I studied science, and I have my own logic for learning methodology, so I was lucky to reach the A 8 stage. In terms of expected returns, it is mainly divided into two stages: the first stage is before 2022, when I ignored the trend and didn’t care whether Bitcoin was rising or falling. At that time, my focus was on $700-1000 a day. When it came, I would go off work and do other things. This is what I did at the time; the second stage started from August 2022, because the amount of funds increased, and it was also obvious that the market was different from the previous two years. In this case, I began to adjust my strategy, from pure short-term to swing, and then do the trend after the swing. It sounds simple, but it actually took me a year and a half to transition. Before I started to switch, I thought that if you can handle short-term trading, it should be relatively easy to switch to swing trading and trend trading, because if you want to do short-term trading, you will definitely be able to pay attention to more details that others don’t pay attention to. But when you actually do it, you will find that it is not the case at all. Let me give you an example that you can understand. When the price is rising, if you want to do short-term trading, you should look for this kind of volatility, that is, the strongest part of the momentum strategy, and then increase leverage and position. But if you want to do swing trading, you will find that you have several buying points for short-term trading, but there is only one buying point for swing trading. In this case, you will find that I thought I could make money according to the short-term strategy, but after I switch to swing trading, I may lose money, especially if I have to endure the profit retracement. If you don’t trade or you are just talking about it on paper, you can’t feel this kind of detail problem, but once you do trading, you will find that there are still many tricks involved.
FC
I see. You started out as a short-term trader, then a trend trader, and now you’re back to short-term trading, right?
Eric
I am doing both now, because I have achieved my goals in stages, so I separated the accounts into two parts, one for short-term trading and one for trend trading. I am even planning to open an account for regular investment in the next two days.
FC
What is this ratio, or why is it configured like this?
Eric
First of all, if you want to maintain your sensitivity to the market, you must do short-term trading. This is like playing games. I used to play Warcraft professionally. For professional athletes, if you dont play the game for a few days, your feel and sensitivity will definitely decrease. Then, in terms of fund allocation, most of my funds will be used to buy spot goods, and there will also be stable returns from the exchange, and I will keep some funds here. I have only solved one problem of trading. If I want to do more comprehensive asset allocation, I still need to learn.
FC
So I understand the current strategy. Short-term trading is mainly for market sense, and spot trading is a long-term configuration, right?
Eric
right.
FC
Why regular investment?
Eric
My current understanding of fixed investment is equivalent to my understanding of the trend after short-term investment. I think this is relatively simple, but after fixed investment, the problem I can imagine now is that if I take out $500,000 for fixed investment, I will encounter the following problems, such as the price is rising, do you want to buy if it rises too much, do you want to sell after you have bought a certain position, or even when the price is falling, it falls very, very sharply, for example, it falls to a position with a particularly good profit and loss ratio, do you want to buy more, which involves whether you use the average cost method or pyramid buying, which is the problem I have to overcome now. If you want to control more funds, there is no doubt that you need to have enough understanding of different market conditions and different trading methods to be able to afford so much money. It is not like what we usually say on the Internet, that is, after you make a lot of money, you will make more money in the future. It is not like this, but that you make a lot of money, but you have more ability to bear risks, but you still need to maintain continuous learning ability to make more money, otherwise your assets will definitely depreciate.
FC
I understand that regular investment is mainly about balancing your short-term timing risks, right?
Eric
Your question is very critical. I can tell you about it. In August 2022, I started to try to do swing trading. Generally, my learning path is to assume that there are many problems now. I need to accumulate more experience in the short term and step on more pits. In this case, I was very impressed that I would open more than a dozen contracts of altcoins at the same time. Each contract was not very large. It was not for making money, but through real trading. Only when you hold a position, your judgment of the market is objective. After opening so many contracts at that time, I found that I had solved a problem that I could not solve in short-term trading. That is, when you do short-term trading, considering peoples energy, time, and emotions, you will find that you cant be very focused on short-term trading, but this market is always moving. In this case, you will find that you are 100% impossible to catch some simple money-making markets. In this case, I suddenly realized that I wanted my short-term level to be higher and make more money. Then I found that this thing cant be done. The physical upper limit cant be done. This was discovered after doing swing trading.
FC
Understand. So in essence, these three strategies add up to your own investment portfolio, or your asset allocation method, which balances long-term, short-term, volatility and returns.
Eric
What you said is more professional. To put it more bluntly, if you want to make more money, you must constantly expand your boundaries and have a more comprehensive understanding of the market. That is to use a part of the funds to step into the pits, and then learn after stepping into the pits. After this, you can grasp it from the perspective of risk management, and you can make more money.
FC
I understand. I would like to ask, did you choose to do short-term trading at the beginning because of some ideas in your past? Or were you anxious to make money at that time? Later, you added the band, or the cycle timing, and then added the fixed investment. What is the order of these three, and is there any landmark event?
Eric
At that time, I did short-term trading because the market was volatile. I didnt say that I was short of money to do short-term trading, but when the market was volatile, short-term trading was the fastest way for me to feel the market. Then the more important question is why I can survive in the market today and have the opportunity to chat with you here. That is to say, I attach great importance to risk management. Even when I didnt know how to trade at the beginning, I knew that I was not very good at it, but there might be ways to play it. If you want to play it for a longer time, youd better survive. So at that time, if you were to do the trend, you would definitely hold the position for a longer time. If you hold the position for a longer time, you cant judge whether your judgment logic is correct or the market just went in this direction, so you chose to do short-term trading at that time. This is the answer to your first question. Then, if you do the trend, it means that the amount of funds has increased. At the same time, I think the original short-term strategy is limited by time, energy, management, and volume. In this case, you will definitely not be able to do it, so I started to slowly turn to this band. As a short-term trader, to a certain extent you need to have a very precise control over the market, but it is impossible for you to control it all the time. In this case, you need to make some money by making friends with time, that is to say, by following waves and trends.
FC
I understand. Lets get back to todays topic and talk about technology, including K-line. The first question is what is the essence of K-line? Some people say it is big data, while others say it is just what the main force draws for you to see, especially for altcoins. How do you understand and why do you choose this as your trading weapon?
Eric
How does a staff member of a serious institution view K-line? This may be different from everyones traditional cognition. First of all, K-line and trading volume are not that important, really not that important. But there are often many derivative interpretations of K-line and trading volume in the market, and the interpretations are divided into many schools. In fact, the simplest thing is that K-line is the opening and closing of the price in a unit of time, and there are highs and lows. In fact, it has nothing to do with the so-called market liquidity. Let me give you an example of my experience. When I went to a proprietary fund, I must look at the K-line first and show my own performance before others recruit me. But when I went there, I found that this thing was completely different from what I understood as fancy or high-end. At that time, there was no K-line on our trading screen, there was only a line chart, and the rest were all data we bought from third parties. To be honest, I was very uncomfortable at the time. I said that without K-line, how could you, according to the analysts words, look at what Yang engulfing, Yin engulfing, and then see if the candle has increased in volume and price. But in the process of learning, you will find that the K-line is just a representation of the price in a unit of time. You cant see the liquidity. Even the K-line is an indicator, and it has a lot of noise. In fact, you just remember the closing price of the price, which is the most meaningful. Other things are not so meaningful. And the trading volume is not so magical. For example, we can hear a method in the market that the intention of the banker and the buying and selling costs of the banker can be speculated through the trading volume (which is actually nonsense).
I will tell you a very simple thing. First of all, the market maker does exist, but it is not what we understand, like a tailor or a decorator, who takes a ruler and a pen and says that I need to sell or buy a certain number of orders at a certain place, and I need to kill some leeks. It is absolutely not like that. The market maker is actually a collection of intelligence. For example, if we define Brother Sun as a market maker, we can usually see some of his operations (what he bought and sold, how much he bought and sold), but in fact, Brother Sun is a collection of governance. According to his capital volume, there must be a team to help him operate. Then, back to the point, trading volume and K-line are important, because as a retail trader, individual investor can see market fluctuations with the lowest cost, but it is limited to this, and it cannot let you see the so-called institutional cost, counterparty, liquidity, etc. These things are all derived concepts to some extent. Conceptual things can be expressed artificially, and people can understand them according to certain words, but if I say it from a quantitative perspective, many things cannot be explained.
FC
I understand. Let me summarize. The first is that you think that the K-line is actually an expression of price. The second is that the main force is a collection of wisdom, or it can be understood as a combined force, which does not actually correspond to one person.
Eric
Yes. You buy a little and I buy a little, and then everyone buys and its done.
FC
Got it. Back to the key point, how can we see the main forces expression of the bottom and top of the market through the K-line? Translated into human language, this round of Bitcoin bottom-fishing, which technical indicators did you look at? In the future, we want to bottom-fish, how should we look at it?
Eric
Before answering this question, I would like to give you a definition of technical analysis in my framework. Technical analysis does not mean that you can make money if you learn a certain type of technical analysis, no matter what school it is, but various schools can explain the market in different time dimensions. You need to limit your own risks through technical analysis, and if you handle your own risks well, you can make money if the market gives you face. It does not mean that you can make money if you learn a certain type of technical analysis, no matter it is traditional technical analysis or the currently popular technical analysis. This is a very big premise.
FC
Not sure about 100% success, is that what you mean?
Eric
When it comes to trading, even analysts who only draw charts will say that they respect the market. What does it mean to respect the market? It means (realizing) that I can’t predict the market, and I can’t (make) all the money in every round of the market. A realistic situation is that you can’t understand most of the market. After filtering, you will find that there are really not many trading opportunities left, and this few opportunities are ultimately a matter of probability, depending on how you understand the market and build strategies. For example, all your strategies are based on quantitative thinking or data statistics. Every order I make must have a statistical advantage, and I often tell my members that in this case, if you can finally make a little money in the game, you may make money, but if you leave a little position, your strategy is a very subjective strategy. In this case, we will find that in the long run, your returns are completely negative. If you can’t understand the underlying logic of this market, you will follow the market and you will no longer have the initiative in trading. The examples I just mentioned may not be reflected enough in Crypto. Most cases actually occur in A-shares. You can find that there are many old investors in A-shares. They have been in this market for more than ten or twenty years. They can talk about all kinds of principles, and their logic can be self-consistent from a practical perspective, but they just don’t make money.
FC
I roughly understand what you said before, so lets go back to the technical indicators. For example, for this round of Bitcoin, when did you start to build a position? What indicators do you often look at in your daily trading? Or what do you think beginners should understand first?
Eric
I will tell you the simplest one. You can just look at the moving average indicator. First of all, you must accept that most of the market is incomprehensible. Dont trade in a noise. In this case, you need an objective tool that is not subject to your subjective will and becomes a handle for your trading ideas. The simplest thing you can use is this handle, whether it is MA or EMA moving average. This is the simplest logic. For example, if you open a moving average, whether you think the market is going to rise or fall, the moving average is here. However, in the actual use process, there are some voices in the market, saying that this moving average is delayed, it is a tool for dealers to draw lines, etc. There is a lot of random price fluctuations in the market. There is no way to make money in the noise. You need a tool to filter out some noise and give you a general trend direction. This thing is the use of the moving average technical indicator. Let me say it again, it is just a filtering tool, a tool to filter out the noise of the market that you cant understand. It doesnt mean that you can make money directly by using this tool. If you can make money directly by using a certain tool, why does Wall Street spend so much money every year to recruit PhDs in physics and mathematics? It doesnt make sense. Moving averages are something that helps you build a trend framework very simply. The simplest way is that when the price is above a certain moving average, we should mainly go long, and when the price is below a certain moving average, we should mainly go short. In this case, your framework is out, and after the framework is out, your thinking will have a handle, and you can continue to iterate your strategy on a repeatable learning path. Once your thinking has no handle, you will think about what the dealer is doing, what the big brother said, or what the news said, and you will drift here and there, and finally you will find that you know everything, but you dont make money.
FC
I have a few questions. First, I have a question for beginners. Maybe not everyone understands technical indicators. For example, how can we express the moving average in a way that everyone can understand? Second, you said that this is actually an indicator to filter out noise. What does this noise refer to? Third, when should I go long or short when the moving average reaches a certain state? Can you give an example of one of your recent transactions?
Eric
Lets talk about the second question first, which is what is noise. Whether you are analyzing a picture on Twitter or in a group, they draw an arrow for you to show you where the price is going. This is very stupid for professional traders. If you can see that this kind of arrow points to the future of the price, they basically havent even entered the door. The so-called noise of this price is that the smaller the time unit, the more likely this trend will exist in the long run. You can open bitstamp and take a look. From the time Bitcoin was listed to today, it has been rising. This is the trend. When you cut into this thing and make a transaction, and when you reduce the time level window, you will find that the price is in a stage of fluctuation. That is, it is in a trend in the long run, in the short term, it is in a state of fluctuation, and then the smaller level window may be a trend again. When it goes back and forth like this, conflicts will arise, and conflicts are noise. If we give a more professional explanation, the so-called noise is that short-term price games will produce noise.
FC
I understand, does it mean that when there is no direction, it is noise?
Eric
You can understand it this way, or say this, for example, lets use the EMA moving average. According to traditional technical analysis, there are three types of market conditions: rising trend, falling trend, and sideways. The price moves around the moving average. When the moving average is parallel, it is oscillating. In the case of oscillation, there is a high probability of noise. This is a framework and does not involve a specific idea. If there is a next opportunity, I can tell you the detailed operation methods of limiting your own risks through some tools, and then you will find that in this market, you can definitely not make money by drawing arrows.
FC
I see. So how do you make money using this moving average?
Eric
When you do trading, you still cannot say that you are going to make money. You can improve the efficiency of your judgment through simple moving average indicators, which is roughly equivalent to making money.
FC
What other steps need to be taken to improve my judgment efficiency and achieve my winning rate?
Eric
Ladies and gentlemen, you can now open the weekly line of Bitcoin. For example, if you set MA 200 or EMA 200, you will find a very magical thing. From January to September and October of 2023, the price fluctuates around the moving average. In this case, we think it has no trend. Then, after October and November of 2023, Bitcoin broke away from the moving average and began to rise all the way. In this sense, the price is above the moving average, and the moving average begins to have a slope. We should mainly start to do more in this area. After going long in this area, it is a framework for us to judge the direction of the market trend. In this case, I keep betting here, and my winning rate of going long is obviously higher than the cost of my shorting. This is how you use the moving average to make money. The moving average is simpler, without involving more details. If the price is above EMA 200 or MA 200, you go long, and if it is below 200, you go short.
FC
I see. Does this need to be matched with the entire trading system? For example, when a certain market situation occurs, what kind of stop loss should we set? Is this correct?
Eric
I would say that if you want to make money in this market, trading requires two frameworks, a macro framework and a micro-operation framework. The so-called macro-operation framework is what kind of trend the market is in now, and what kind of orders you should do with a high probability. If you want to find a more detailed entry point, for example, through the nesting of multiple time-level windows, through some rules and technical indicators, let me find opportunities at a smaller time level, specifically, stacking buffs. I need to open a small time-level window and use my own tools to further limit my risk, find the key position, the position worth gambling, and then the price will rise with a high probability. To put it more simply, for example, I use the oversold of my channel, the support area of the channel plus the oversold area plus the bottom divergence plus the support of the small-level EMA, and I will find that the general direction is to do more. In terms of the small time-level window, I have accumulated enough bullish buffs, and then it is a very mechanical judgment logic. If you do this judgment logic for a long time, you can further limit your risk, and finally leave it to probability, whether the market can make you money.
FC
I would like to ask, you have your own community, if a newbie enters your learning system, what should he learn in the first three steps? What should his learning framework be?
Eric
The first point of the learning framework is to let the knowledge enter your brain. First of all, you must realize that you are a rookie. This market is very complicated. It is not about drawing a line, drawing pressure and support very subjectively, and then the price will go in your direction. You must respect the market and don’t think you are particularly awesome. All my members must do homework. I should be the only one in the market. If you join my group, you still have to do homework. This will make many people very painful.
FC
Are you taking trading notes?
Eric
No, I have already written a series of courses for you. No matter what you do, the easiest way to improve is to imitate. I wrote a manuscript and made a video. I told them to copy down word for word what I said in the video. Dont think you know these things after watching them once. You seem to understand them, and you are good to go. The most basic thing is that you have to learn the basic movement rules of market prices, including but not limited to K-line, winning rate, random distribution, profit and loss ratio, and what is the underlying logic of technical indicators in the process? What is it from a mathematical point of view? Then how do you understand the law of this price? After you have learned these, you will most likely find that this market is not what you imagined. It seems that you can open an order every day as soon as you open your mobile phone, and you can make money at any time after opening the order. The normal reaction should be that I don’t understand what is going on in this market, but I can understand it in another place, so I will gamble in the place where I can understand it. Then I also provided you with a real-time trainer with 100 orders, so that you can follow it to buy and sell. However, it does not mean that you should just buy when the indicator appears. Instead, when the signal is given, you should think about what knowledge you have learned in previous courses and apply it. For example, the current price provides a 5% stop loss space for buying and selling. How can I further reduce the stop loss space by allocating positions more reasonably? Or how can I find a more suitable entry position in a more microscopic time window?
I actually designed a path for everyone to clearly tell you that trading the market is difficult. All the real-time practice and homework you do are to force you to think about how things work. It is a very passive learning process, rather than just reading a book and doing what the book says.
FC
I understand. My understanding is that there are three steps as mentioned earlier. The first step is to clear everyones understanding of the market and stop thinking that they can beat the market. This is a mentality issue. The second step is to let them learn, and hope that they can strengthen their basic skills. They need to output basic knowledge. The last step is to practice. You give them a simulator of past real trading and let them use those basic skills to strengthen the correct operation system and actions.
Eric
Yes, but the tool is for real trading. For example, if there is a buy now, I will provide you with an Excel table. How many real buys have you found? What is the current market framework? When you buy, what should your stop loss be? How do you allocate it? You have to record all of these, and at least 100 transactions. After I set some thresholds, I actually earned less money from the so-called membership fees, but I really want to teach everyone the methodology. The training I received in the institution is replicable, so I hope to teach everyone something, especially how to correctly understand the market. As long as you lower your expectations and identity first and have a clear understanding of yourself, trading is actually not that difficult.
FC
That last step is kind of like deliberate practice, right?
Eric
Yes. In the end, if you want to do well in trading, you not only need to trade, but also read more books to enhance your understanding of the market. Coming back, Deliberate Practice is indeed a good book. I also recommend a book called The 10,000-Hour Rule. This book helped me a lot before I went abroad. It teaches you how to become a master within a limited goal through a scientific set of practice methods.
FC
Understanding. I think the most helpful thing for me is probably the trading notes. Although we also add leverage, which token do I buy, why do I buy it, at what price, my expected return, do I need to stop loss, this is the axis of my trading notes. I may have been writing for about a year. The most valuable thing is when you look back, because you beautify yourself and you will magnify the so-called ideas at that time, but in fact, when you look back on your own trading notes, you will know clearly why I bought it, why did you not sell it? Why did you sell it? So when I heard you ask everyone to do these 100 exercises just now, I think this is also very effective for me.
Eric
Regarding the beautification you mentioned, when I do live broadcasts, I often say to everyone, what is beautification? It means that when two people are in love, after breaking up, they both think that the other person is a bastard, this is beautification.
FC
I found that you are also an emotional blogger. Next question, I have been reading your tweets, and you happened to be writing about TRBs bullishness recently, so can you tell me why you are still bullish? What is your judgment logic?
Eric
Now I can tell you as an analyst, or I can tell you the truth. Actually, I am a quantitative trader. There are people behind me who help me write and optimize algorithms. The core of my trading is to use algorithms to give me advantages that others do not have in this market, or to look at this market from another perspective. For example, at 12 noon on July 24, my market data showed that TRB was being bought. I think this is a very good signal. From the price pattern, it is in the previous low area, but it does not mean that it will definitely rise in this area. So I sent a tweet at that time, expressing it very tactfully, saying that people started buying from the 24th to the 25th, and then yesterday TRB rose by more than 20 points. In this case, I did not see that it would rise through traditional technical analysis, but found that people had been buying through my algorithm. I thought this thing was worth gambling, so I bought it. This is the truth I tell you.
FC means there is something unusual happening.
Eric
Yes, you can understand it as an abnormal movement. For example, since October last year, I have caught most of the altcoins that have risen ridiculously in the market, such as Dogecoin, PEPE, etc. What I want to tell you here is that technical analysis is definitely limited. You cant see the average cost of the banker, the so-called bankers buying and accumulation and distribution, etc. You need some mathematical models to understand what is happening in the market now, but let me be objective. Even if you know what is happening in the market, you cant make money every time. So for example, TRB rose yesterday. After the rise, my first action was to stop profit. I didnt know how high this thing would rise. I only knew that this thing would rise, and then I bought it in a relatively low-risk area. After buying it, it did rise according to my expectations. My first reaction was to protect myself, stop profit, and then retreat stop loss. Let the rest of the market go. I wont say that someone is buying now, or that someone is going to absorb this thing. This is not what traders do, but what analysts do.
FC
I see. Why did you buy PEPE at that time?
Eric
We now have algorithms. There is a tool on the market called Liquidition. From a mathematical point of view, it is not so magical. You can see the so-called 25x liquidation and 5x liquidation. To be honest, this is a relatively good product, but when describing this tool, it is very tricky and uses some word games. It is not what everyone understands. We have made a product that can indeed see what kind of orders are placed at which positions in the market, and from the perspective of data statistics, it may indeed affect the trend of the market. For example, the most recent target, MEW, we saw a large market and a large order of 0.0087, and the price seemed to be 0.78 at the time. I didn’t take the initiative to look at this target. This was during the live broadcast. Someone asked about it, and then I looked at some data and said that someone was doing this. That’s the situation. This logic transcends technical analysis and is completely a data problem.
FC
When placing an order, what message is the main force or the market expressing?
Eric
If my professional ethics were lower, I could package it into a product and say that it is the so-called main order. In fact, it is not like that. We use data statistics to pick out such a piece from the large amount of noise in the market. Its orders will have an impact on future prices. For example, like MEW, during its rise, we are very sure that after it rises to this point, it is basically difficult to continue to rise. It is highly likely that it will at least stay for a period of time. Then, if the result we want is that if the market gives me face, it will fall. This is an objective way for traders to look at the market. Of course, if it is just to sell a product, it is directly said that this is the main force.
FC
I see. I saw a tweet on your Twitter about a framework for selecting altcoins. The first one is to only select coins that have gone through the four stages of incubation, breakthrough, explosion, and exhaustion in the past year, such as YGG and SOL. Lets not talk about the following, but these two, because one of them is our primary investment and the other is our secondary purchase. What does this mean? Can you explain it?
Eric
Under what circumstances can you make money? Only when the market moves beyond the standard can you make money, that is, the market must go through a complete cycle. What is this so-called cycle? It is brewing, breakthrough, outbreak and exhaustion. The so-called brewing process, in the specific price performance logic, is that the trading volume decays, and then the K line becomes smaller. The price basically has no short-term fluctuations, and then suddenly there is a breakthrough, whether it is an upward breakthrough or a downward breakthrough. For example, if it breaks through, there is only one positive line. The speed of this positive line will be very fast, directly breaking through the key area of the previous high pressure. After the breakthrough, whether it is the so-called five-wave rise or oscillating upward, it will continue to rise. After the rise, it has ups and downs in this stage. After that, the attention of the market, or the amount of funds is attracted, it will be found that the increase in market prices has changed from the original reasonable, understandable, and regular rise and fall to rise, rise, rise, fall, and then continue to rise, and it is in a stage of outbreak or acceleration. Or in a language that everyone can understand, it is the so-called rush point, and the final exhaustion is that after the outbreak, the price enters an extremely irrational fluctuation. Why does this market become exhausted? Because in this situation, it is very easy for everyone to open a position. Fortunately, the exchange limits the leverage to 125 times. If there is no leverage limit, everyone would be willing to pull 1000 times leverage. The price fluctuations are getting more and more intense, and the leverage is getting higher and higher. In this case, once someone starts to rush and smashes it up a little, a chain effect will be formed, that is, the warehouse will burst and the bubble will burst. After the warehouse burst, it will become a kind of exhaustion. After exhaustion, the price will fall. From the explosive growth, it has become a kind of oscillating logic. For this kind of target, funds will pay attention to it, and the liquidity is relatively good. One of the three major assumptions of technical analysis is that history will repeat itself. The logic is that, for example, the double top will fall. The last time the double top fell, the double top will fall this time.
FC
What are the other two assumptions?
Eric
The other two assumptions are that the overall trend of the market is in motion and that the market is all-inclusive. The so-called all-inclusive market means that all the news we see is post-hoc, and the people who get the news in advance have already made the corresponding trading decisions, and then the price is present.
FC
Its really like a mountain between two different trades. I watched YouTube and you introduced many trading strategies. I would like to ask, which trading strategies do you think are easier for beginners to use? And what kind of people or personalities are they suitable for?
Eric
First of all, the simplest trading strategy is to use the moving average. I have just explained this to you. The moving average can tell at a glance whether something is on a trend or a downward trend. If you want to see a more detailed explanation, you can search for my ideas about the moving average on Twitter. If you have funds and the amount of funds exceeds a certain amount, you actually need to make a fixed investment, especially in cryptocurrencies, which is a fixed investment and an asset allocation. This is the most important thing. Once your funds are up, the most important thing is to make friends with time, rather than thinking about how to dodge and make more money. At the same time, after your funds are up, you must consider the issue of asset allocation. What I say below may be controversial, please understand objectively. I have told all my members one thing: trading is not suitable for everyone. It is best to set a limited framework for funds and time for yourself before you learn to trade. The so-called limited framework is that I will use $30,000 or $20,000 to gamble in this market. I will give myself two or three years. If I can achieve some results, it proves that I have basically got started and can continue to study further. If you find within these two or three years that you cant do anything except drawing lines, then it is best to exit the market. This market may not be suitable for you.
I am usually very cautious when speaking on Twitter, and I basically don’t use words that cause people’s emotions. Many people on public social media always think that trading is very exciting and dopamine-filled, as if you can make millions of dollars just by moving your fingers. But in fact, when your trading system matures, you will find that trading is relatively boring. Even if you have a stable job and do well, you don’t need to trade at all. Because only a small number of people can make money from trading. In this case, you’d better sign a fund and framework time. Otherwise, you may have spent several years, you know all kinds of strategies, you have experienced all kinds of market conditions, but you just don’t make money. This kind of thing is really too much.
FC
Understand. You have a very popular YouTube video about the Turtle Trading Method. Do you think this is a method suitable for beginners?
Eric
No. The turtle is actually a breakthrough. For any strategy, before you understand it, dont listen to the plain words, but understand the underlying logic of the strategy. Can it be explained mathematically? If it cant be explained, youd better take it easy. I now say that moving averages and turtles are more suitable for a mature market. The so-called mature market means that it will follow a continuous trend, such as breaking through the previous high or breaking through the average volatility of the past. However, the cryptocurrency market is still in a relatively early stage. It does not have a very strong trend. Compared with the US stock market, in this case, if you use the turtle trading method, it is likely that you will fail and not make any money after a circle. So I recommend the simplest way to everyone, which is to use the moving average.
FC
Let me ask more about the moving average. If the market goes down, and my position is 100,000 USD, and I want to trade using the moving average, is the key point that when the moving average is broken, I open a long position, and when it returns to the moving average, I stop loss, and then repeat this strategy, is it feasible?
Eric
This is the simplest framework, it is not a strategy. My buying this time and my next buying must have the same logic, it is a strategy. Moving average is a framework, and you need a strategy if you want to make money in the market. For this strategy, you have to think of yourself as a robot, that is, I bought 7 times, and the buying logic of the 7 times must be the same. I often joke with everyone that in the morning, I look at what the big brother opens, at noon, I look at what the news opens, in the afternoon, I look at what the indicators open, and in the evening, I don’t believe in evil and lose a day, and then I open something based on my mood. In a simple day, your trading logic changes 4 times. Even if you have a moving average, you still can’t make money.
FC
The framework actually needs to be matched with a strategy, but the strategy is essentially a set of ways to relatively improve the winning rate, right?
Eric
Yes, you have to imagine yourself as a robot. I always have to execute a logic without any emotion, where to buy, where to sell, and this logic basically cannot be changed. If you want to change it, from a quantitative perspective, it will fall into overfitting. Lets take the simplest example. For example, we use the commonly used MACD to buy. Strictly speaking, you need to buy after each golden cross of MACD. You made money last time you bought, but you didnt buy this time. Once this behavior occurs, you are actually destroying your own trading logic. In the long run, your mathematical expectation is negative and you cant make money.
FC
I hope you can learn something from this. Specifically, I think it is a systematic learning method, right? We wont go into details, just go to the teachers community to learn.
Eric
Its not that I dont want to tell you about this. There are often people in the market who say whether a trading strategy will become invalid after it is made public, and why others want to take you with them when they make money. Let me give you a very simple example. Only after you go to Tsinghua University or Peking University, you are qualified to say that I didnt do any extracurricular exercises every day when I went home, and then I was admitted to Tsinghua University or Peking University. I went to school in China and the United States, and I deeply realized one thing, that is, most people, even if you give them a very clear learning path, the first thing they do is not to study this path, but to doubt it first. After doubting, they will embed themselves in their own subjective logic, think that they are reasonable, and start to optimize. After the optimization, they become self-righteous and do their own thing. After a long time, they find that they have completely deviated from what you learned at the time. So speaking of trading, I have talked to you from the night before yesterday until 12 oclock in the evening, telling you the details of various market trading techniques and position management. I can say without reservation that it is still very difficult for you to get how to make money right away, because after I have finished talking, if you really want to make money, you have to place thousands or tens of thousands of orders to verify whether I am right or wrong, how awesome or stupid I am. After such a repetitive cycle, one day you will reach a balance. It is definitely not the case that you can make money by using some indicator, some learning method, or taking some class. It is definitely not like that.
FC
I understand what you mean. Lets talk about learning methods. I have learned a lot of new things recently. What makes me happy is that I have a set of learning methods that can be used universally. Then I also saw that you are choosing audio equipment recently, which is essentially a new field. I believe that if you do one thing well, you must have a unified method to do another thing well. Can you share this path with everyone?
Eric
This is a really good question. If you want to be successful in trading, youd better have done something in your daily life, and then transfer the experience of that thing to trading. If you have done something before, it is equivalent to having a framework. Under this framework, you will not think about anything else. In fact, the framework is the same for many things you want to accomplish. I have been doing business for a long time, and I was also a professional player of Warcraft before. The whole logic behind it is that you must first deal with the problem, and you cannot have an evasive mentality. After dealing with the problem, you must break down the big problem into a small problem as much as possible, and after the small problem, each problem needs to be supported by data. For example, I bought a chair some time ago. If I had enough money, I could buy it casually, but in fact, during the purchase process, including monitors, chairs, tables, etc., I made an Excel spreadsheet for all of them. I listed their prices, advantages, disadvantages, and delivery time. Finally, after listing them, I had a clear idea in my mind. I already had a framework. After that, I went to the offline store to try it out. If we open Taobao to buy a chair now, you will find ergonomic chairs from all over the world, ranging from a few hundred to several thousand. To the naked eye, you cant see any difference, but when I try them online, I will find that the difference is actually very large. These are some of my methods.
FC
Let me try to summarize. As far as I understand, the first thing is that you must know your needs. Secondly, when you buy a chair, you should consult a lot of professionals, and abstract a lot of key indicators. Then make an Excel table, do mapping, and then go offline for experience and practice. These are the steps I understand, right?
Eric
Yes. I am very happy with my current chair.
FC
If we switch to trading, the first step is your expected return. What are you here for? You are here to earn 100 times, 10 times, 50% annualized, 20% annualized. The second step is to find teachers with different strategies, including you, to see how everyone makes money. The third step is that you may have chosen a profitable or favorite trading strategy, and you need to break down the key indicators of the trading strategy. The fourth step is like what you just said, you may have to make 100 transactions and review them, and finally you may start trading. This is my understanding.
Eric
What you said later is all right. The first point is not how many times you want to make, but how can I survive in the market? No matter how much money you want to make, you must first measure your own risks, because your time, energy, and money are all limited. You must use your limited resources to play a difficult game in the market. This is why I think I can live to this day and have the opportunity to chat with you all here.
FC
I see. This is just following up on this question. How do you stick to your bottom line? What’s your stop doing list?
Eric
Regarding this question, maybe I have been doing relatively smoothly during this period. So far, I have not encountered any problems. In the short term, there is no stop doing. But in the long term, I think you cant decide to beat the market just because you make money and the income goes up. You must always maintain (respect for the market). Even when my winning rate was 100% during that period, I was still more and more afraid of the orders, and I kept saying to be careful, otherwise there would be a big one soon. I must be careful at all times and never let myself think that I can beat the market. I basically never say that I will make a certain number of times the income or how much money. This risk is more difficult to handle, but I have handled this risk well. I can make as much money as the market gives me face, and this is a profit.
FC
Actually, I think it is better to use what Mr. Joe said, stay foolish, dont think of yourself as someone important. These are my overall problems. Finally, I would like you to recommend some traders or books worth paying attention to.
Eric
The first one is Anton Kreil, who is a very good professional trader. He worked at Goldman Sachs, Morgan Stanley, and Lehman Brothers. He started trading at the age of 16 and retired at the age of 27. His main business now is to train traders and promote some of the people he trained to these large hedge funds or large investment banks. This person is undoubtedly very good. You can go to Twitter or YouTube to see his understanding of risk management, market models, and money. The second one is Warrior Trading. The boss is called Rose. He also has training courses. My understanding of him is that if I don’t learn something from him, it only proves that I am a bad trader. His strategy is actually very similar to the trading logic of my proprietary fund. He mainly does this kind of pre-market momentum strategy. This guy made more than 20 million US dollars by doing short-term trading during the epidemic bull market. Both of them have enough free content, and you can learn enough good things.
Actually, I want to recommend two traders. The other one is Mr. Ni. I want to say a little more about this. When we were in the previous fund, our boss also joked that he could become an analyst after retirement. In fact, from the perspective of traders, there are some neutral views on many such analysts. I wonder why they can make a lot of money and fame by introducing the market every day. But in fact, as my capital volume increases and my strategy gradually matures, including my understanding of the world, I will find that Mr. Ni’s continuous output every day is really awesome. And what he outputs objectively does not let you make money directly after reading the news, but you can understand it as a different institution and different gameplay in the current cryptocurrency market. What is happening to the player is not a strategy, it is just a piece of news, but at the same time, for interpreting this news, I think Mr. Ni has been able to do this kind of interpretation every day for such a long time. He must be very good. Although most of my transactions are still done through my model, I am also slowly learning what Mr. Ni is talking about.
The books include The 10,000-Hour Rule, Deliberate Practice, and some brain science books, such as Cognitive Talent.
FC
I understand. I actually did a segment with Teacher Ni before, and you can listen to it again.
