Guest of this issue: Eric, a day trader of proprietary stock funds in the US, Twitter @CycleStudies
*All text is for sharing only and does not constitute any investment advice.
TL;DR
I. About Trader Eric
The core of trading is "people". A person's experience, background, personality, and capital attributes determine the formation of their trading strategy.
- What is Eric's trading strategy?
1) Capital size and allocation: Eric manages a capital of tens of millions, with most of the funds invested in spot trading, stable income from exchanges, and a portion of the funds in a cash position.
2) Expected returns & tolerable drawdown: Eric uses technical analysis to limit and manage his risks, and then continuously bets on probabilities for returns.
3) Trading logic: Short-term + trend + dollar-cost averaging
- Why did Eric form this trading strategy?
1) Trading experience
Eric entered the industry in 2017 and his trading experience can be divided into two stages:
In the first stage, before August 2022, he only did short-term trading, ignoring trends, with the daily goal of earning $700-1000. At that time, there were two main reasons for doing short-term trading: first, the cryptocurrency market was very volatile, and short-term trading was the fastest way for Eric to feel the market; second, in the unfamiliarity with the crypto market, Eric believed that short-term trading could more efficiently help him judge whether his trading logic was correct and accumulate trading experience.
In the second stage, after August 2022, he spent a year and a half transitioning from pure short-term trading to swing trading, then to trend trading, and later added dollar-cost averaging. The reason for transitioning to trend trading also has two aspects: first, the expansion of capital size. As a short-term trader, to a certain extent, one needs to have very precise control over the market, but with the expansion of capital, limited by time, energy, and management, it is impossible to have precise control, so it is necessary to make some "friends with time" money; the other reason is the change in market environment.
In summary, Eric's transition from only doing short-term trading when he first entered the industry to the combination of "short-term + swing/trend + dollar-cost averaging" now is mainly accompanied by the expansion of capital size. Eric believes that to control more money, one must continuously expand the boundaries of their trading, have sufficient understanding of different trading methods, and the path to achieve this is to use a portion of the funds to make mistakes, then learn, and finally, from the perspective of risk management, gain the ability to control oneself.
2) Professional background
Eric graduated from the statistics department of New York University. After graduation, he worked in venture capital, focusing on the education sector, and then transitioned to being a day trader of proprietary stock funds in the US. He now operates the "Million Trader" community, providing quantitative tools and trading training to everyone.
- Who is Eric's trading strategy suitable for?
Eric's trading strategy, or trading mindset, is suitable for "people who are willing to continuously operate and review". Mindlessly buying based on indicators/signals is meaningless. The correct path should be deliberate practice and continuous advancement, such as analyzing the market with what framework, how to allocate positions, how to control stop-loss, etc.
II. Eric's Trading Story
Real knowledge is verified through practice, and reviewing specific trades can provide a more intuitive understanding and learning of trading strategy application.
- How to make money through technical analysis?
First, let's talk about some theory that needs to be understood:
Candlesticks are just a representation of prices within a unit of time. Although they, along with trading volume, are the tools that retail traders can see market fluctuations with the lowest cost, their role is limited to this and 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 collective force, and does not correspond to a specific person.
Different schools of technical analysis can explain the market at different time dimensions. Regardless of the school, just learning technical analysis does not mean one can make money. It still depends on how to understand the market and build strategies, based on quantification or statistics, etc. Each of Eric's trades must have a statistical advantage.
Now, in terms of practical operation, for beginners, moving averages are the easiest indicators to start with:
Trading requires two frameworks: a macro-operational framework and a micro-operational framework. The macro-operational framework is about what kind of trend the market is in now, and what kind of trades you should probably make. The micro-operational framework is about finding more subtle entry points through a nested window of multiple timeframes and some patterns, technical indicators, etc.
At the macro-operational level, moving averages can help establish a trend framework. The simplest is that when the price is above a certain moving average, one should mainly go long, and when the price is below a certain moving average, one should mainly go short. The commonly used moving averages here are EMA200/MA200. Under this framework, find a repeatable learning path to continuously iterate the strategy. At the micro-operational level, it is actually about finding key positions worth betting on, under the premise of limiting risk, such as stacking Buffs.
For example: at the macro-operational level, judging the overall direction is to go long through oversold areas of the channel, support areas, bullish divergence, and small timeframe EMA support, and then on the smaller timeframe window, having accumulated enough bullish Buffs, further limit one's own risk, and finally leave it to probability.
It is emphasized again that moving averages are just a trend framework, and to make money in the market, one needs to match a strategy. The execution of the strategy should imagine oneself as a robot, executing the same logic without any emotions each time. If this logic changes, from a quantitative perspective, it will lead to overfitting, and in the long run, the mathematical expectation is negative.
Finally, it should be noted that technical analysis has its limits. It is not possible to see the average cost of the big players, as well as the so-called buying, absorbing, and distributing by the big players. What is needed are some mathematical models to understand what is happening in the market. However, even in the case of knowing what is happening in the market, it is not possible to make money every time.
- When choosing altcoins, why choose coins that have gone through the "brewing, breakthrough, eruption, decline" phases in the past year?
Eric has a tweet about the coin selection framework for altcoins, https://x.com/CycleStudies/status/1817823784466092489, where he mentioned the need to choose coins that have gone through the "brewing, breakthrough, eruption, decline" phases in the past year. Regarding this logic, Eric's explanation is:
The more standard the market moves, the more money can be made. This standard is going through a complete cycle, namely brewing, breakthrough, eruption, and decline.
The brewing process reflects a decrease in trading volume, smaller candlesticks, and virtually 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, with a single bullish candle directly breaking through a key area of previous high pressure. After that, the amount of capital in the market is attracted, and the price's fluctuation will change from a reasonable, understandable, and regular rise and fall to a continuous rise or fall, indicating that it has entered an eruption or acceleration phase. Finally, decline is after the eruption, the price enters an extremely irrational fluctuation, with increasingly intense volatility and higher leverage. Once someone starts to sell and run, it will create a chain reaction, leading to liquidation and bursting of the bubble, and then it becomes a decline. After the decline, the price starts to fall, transitioning from explosive growth to oscillating growth.
This type of target is where capital is focused, and liquidity is relatively good, because one of the three major assumptions of technical analysis is that history repeats itself. The other two assumptions are: 1) the overall trend of the market is in motion 2) the market includes everything, meaning all news seen is retrospective, and those who have received news in advance have already made corresponding trading decisions, and then this price is reflected.
- What should be the steps for beginners to learn trading?
The first step is to measure one's own risk. A person's time, energy, and money are all limited, and it is necessary to use limited resources to engage in a high-difficulty game in the market. Therefore, it is best to set a limit on one's funds and time before learning to trade, such as how much money to gamble in the market for how long. If there are results within the specified time frame, continue; if not, exit the market.
Step two, learn and find more teachers with different strategies and methodologies to see how everyone is making money. Once you find a profitable or personally appealing trading strategy, you need to dissect the key indicators of the trading strategy.
Step three, make 100 trades and review them.
Or if you have already achieved something in your daily life, you can transfer the experience of that thing to trading. The important thing is the framework.
- What is the Stop Doing List?
Always maintain awe of the market.
Throughout the conversation, Eric has been emphasizing the need to "value risk". Just because you have made money, you should not think about beating the market. During the period when Eric had a 100% win rate, he was not more excited to trade, but more afraid, afraid that the next trade would result in a big loss. The reverence for risk and control should always come before planning to make a certain multiple of returns.
III. Eric's Must Read
The growth of excellent traders is inseparable from continuous external input, learning from other excellent individuals, and exploring content that is worth referencing. Through other people's "Must Read" lists, we can continue to accumulate and grow.
- In terms of traders, Eric recommends:
1) Anton Kreil, who started trading at the age of 16 and retired at the age of 27, with experience at Goldman Sachs, Morgan Stanley, and Lehman. He now focuses on training and promoting traders for large hedge funds and investment banks. Eric recommends watching his videos on risk management, market patterns, and understanding money on YouTube. https://www.youtube.com/@InstituteofTrading
2) Warrior trading, led by Rose, who made over $20 million during the pandemic bull market through short-term trading. Eric's evaluation is that if you haven't learned anything from him, it only proves your lack of skill. https://www.youtube.com/@DaytradeWarrior
Both of these individuals have plenty of high-quality, free content available for learning.
3) Teacher Ni, who consistently produces high-quality content. His output provides interpretations of various players in the cryptocurrency market, changing Eric's bias as a trader towards "analysts".
- In terms of books, Eric recommends:
"The 10,000 Hour Rule", "Deliberate Practice", "Cognitive Talent"
Conversation Record
FC
I actually started following you because we interviewed a colleague of yours, and he said he took your course. He insisted on introducing us, and my first impression of you was actually from your profile picture. I don't know where you took that, but my profile picture is from when I was skiing in Georgia.
Eric
I took mine when I was climbing a snow mountain in China.
FC
I see, you clearly enjoy skiing. I've been following your Twitter for a while, and I think you are brave to put your actual trading results out there, at least the daily profit trend. Also, what left a deep impression on me was seeing you recently renovating, and your discussions on how to buy speakers and what constitutes good speakers. From this, I can see your understanding path and learning logic for a certain topic, so I wanted to invite you to talk about trading. After getting to know you, I would recommend you to everyone with three key points: first, your profits from trading; second, you have a professional methodology; third, others have actually found your methodology helpful, including the topic of candlesticks or technical indicators, which I have always outsourced to others to help me with, as I haven't seriously studied them myself. The reason is, in 2013, I asked a friend who bought Bitcoin, how do I trade? He recommended a book to me, "Japanese Candlestick Charting Techniques", but after reading the first chapter, I was discouraged, it was too difficult. So, after many years, I want to pick up this matter again, and I hope you can be my guide.
We will divide it into four parts. First, introduce your background. Second, talk about your trading experiences and what experiences have determined your current trading strategy. Third, discuss your specific trading strategy. Fourth, talk about your growth and recommend some good content to everyone. Let's start with the first part, could you briefly introduce your background?
Eric
Hello everyone, I'm Eric, and those familiar with me call me Boss Wang. I went to the US to study in 2013. After graduation, I worked in venture capital, mainly focusing on the education sector, and then transitioned to being a day trader of proprietary stock funds in the US. Now I have my own community called "Million Trader", providing quantitative tools and trading training to everyone, just like how I was trained when I started working. I train my students the same way others trained me. That's the current situation.
FC
Okay. So, what year did you enter this industry?
Eric
Broadly speaking, I actually learned about this stuff in 2013. At that time, I had just arrived in the US, and the assistant for astronomy and physics was a Chinese guy. There was no one else there that day, just him and me, and we didn't talk about astronomy, we habitually talked about politics, and then we talked about this thing called Bitcoin. He said he had hundreds of them, and that was the first time I heard about Bitcoin. Then in 2017, a friend who worked in venture capital at ZhenFund asked me if I knew about this thing. I said I did, and he asked me to take a look at where it had gone, and I found that the price of Bitcoin had risen to an absurd level. So, strictly speaking, I would say I entered the industry in 2017.
FC
I see. Let's move on to your experience. Can you briefly introduce your overall investment strategy now, such as the size of your capital? What kind of expected returns? What level of risk are you willing to accept? And what is the cycle like?
Eric
As a trader, all the money you make comes from market fluctuations. The greater the market fluctuation, the more money you can make. In the absence of market fluctuations, no matter what strategy or how you maneuver, you will lose money. So, catching the market, and I'm lucky to have reached the A8 stage in terms of learning methodology. In terms of expected returns, it is mainly divided into two stages: the first stage was before 2022, when I ignored trends and didn't care whether Bitcoin was rising or falling. At that time, my focus was on making $700-1000 a day, and then I would go do something else. The second stage started in August 2022, because the capital had increased, and it was obvious that the market was different from the previous two years. In this situation, I began to adjust my strategy, transitioning from pure short-term trading to swing trading, and then to trend trading. It sounds simple, but it actually took me a year and a half to transition. Before I started the transition, I thought that if I could handle short-term trading, transitioning to swing and trend trading should be relatively easy, because if you want to do short-term trading, you must be able to pay attention to more details that others have not paid attention to. But when you actually start doing it, you will find that it's not the case at all. For example, during an upward price movement, if you want to do short-term trading, you should look for that momentum strategy's strongest segment, then leverage up and increase your position. But if you want to do swing trading, you will find that while you had several buying points for short-term trading, there is only one buying point for swing trading. In this case, you will find that what I thought would make money according to the short-term trading strategy, might actually result in losses when I transition to swing trading, especially when you have to endure the drawdown of profits. These detailed issues, if you don't trade or if you only talk about it on paper, you won't feel it, but once you start trading, you will find that there are many nuances to it.
FC
I understand. You started with short-term trading, then trend trading, and now you're back to short-term trading, is that right?
Eric
I do both now, because I have achieved my phase goals. I have separate accounts for short-term trading and trend trading, and I'm even planning to open an account for dollar-cost averaging in the next few days.
FC
What is the ratio for this, or why do you want to allocate it this way?
Eric
First of all, if you want to maintain sensitivity to the market, undoubtedly you need to do short-term trading. It's like playing a game. I used to play Warcraft professionally, and for professional athletes, if you don't participate in the game for a few days, your feel and sensitivity will definitely decrease. As for capital allocation, most of my funds will be used to buy spot assets, while also having stable returns from exchanges, and a portion of my funds will be left there. I have only solved one problem in trading. If I want to do more comprehensive asset allocation, I need to learn more.
FC
So, I understand your current strategy. Short-term trading is mainly for market feel, and spot assets are for long-term allocation, right?
Eric
Yes.
FC
Why dollar-cost averaging?
Eric
My current understanding of dollar-cost averaging is similar to when I understood short-term trading after doing trend trading. I thought this was a simple matter, but after doing dollar-cost averaging, the problems I can now imagine are, for example, if I put $500,000 into dollar-cost averaging, I will encounter some issues, such as if the price is rising, do you want to buy more? After you have bought a certain position, do you want to sell? Even when the price is falling very sharply, for example, if it falls to a very good risk-reward ratio, do you want to buy more? This involves whether you want to buy using the dollar-cost averaging method or pyramid buying. This is the problem I need to overcome now. If you want to control a larger amount of capital, undoubtedly, you need to have a sufficient understanding of different market conditions and trading methods in order to handle that much money. It's not like what we usually say online, that once you make a lot of money, the money you make afterwards will be easier. It's not like that. It's that once you make a lot of money, you just have more capacity to bear risks, but you still need to continue learning to make more money. Otherwise, your assets will definitely depreciate.
FC
I understand that dollar-cost averaging is mainly to balance the risk of your short-term timing, right?
Eric
Your question is very important. I can tell everyone about it. In August 2022, I started trying to do swing trading. Generally, my learning path is that now, assuming there are many problems, I need to accumulate more experience in the short term, step on more pitfalls. In this case, what left a deep impression on me was that I would simultaneously open contracts for over a dozen altcoins. Each one wasn't very large, not for making money, but through actual trading, you can only have an objective judgment of the market when you have a position. After opening so many contracts, I found that I invisibly solved a problem that I couldn't solve with short-term trading. When you do short-term trading, considering human energy, time, management, and volume, you will find that you cannot be very focused on short-term trading. But the market is always moving. In this case, you will find that you are 100% unable to catch some simple profitable market movements. I suddenly realized that I hoped to improve my short-term trading skills to make more money, and then I found that this was not possible, physically impossible. I only realized this after doing swing trading.
FC
Understood. So essentially, these three strategies together form your own investment portfolio, or it's called your asset allocation method, balancing long-term, short-term, volatility, and returns.
Eric
You put it in a more professional way. To put it more plainly, if you want to make more money, you need to constantly expand your boundaries, have a more comprehensive understanding of the market, and use a portion of your funds to step on pitfalls, and then learn from it. After this, from a risk management perspective, you can handle it and make more money.
FC
Understood. I want to ask, was the initial choice to do short-term trading based on your past thoughts? Or were you just eager to make money at the time? Later, you added swing trading, or called cycle timing, and then added dollar-cost averaging. What was the sequence of these three, and were there any significant events?
Eric
It seems that I started short-term trading because the market was quite volatile. It's not that I was short of money to do short-term trading, but in a situation where the market was quite volatile, short-term trading was the fastest way for me to feel the market. The main issue was why I can survive in the market today and have the opportunity to chat with everyone here. It's because of my emphasis on risk management. Even when I didn't know how to trade at the beginning, I knew that this was something I didn't know how to play, but there might be methods to play it. If you want to play for a longer time, it's best to develop a bit. So, at that time, if you want to do trend trading, it definitely involves holding for a longer period, and when you hold for a longer period, you can't determine whether your judgment logic is correct or whether the market just happened to move in that direction. So, at that time, I chose to do short-term trading. That's the answer to your first question. Then, when doing trend trading, it was after the capital increased, and I felt that the strategy of short-term trading was limited by time, energy, management, and volume. So, I slowly started to transition to swing trading. As a short-term trader, to some extent, you need to have very precise control over the market, but you can't always be in control. In this case, you need to make some money by being friends with time, that is, doing swing trading and trend trading.
FC
Understood. Let's get back to today's topic and talk about technical analysis, including candlesticks. The first question is, what is the essence of candlesticks? Some say it's big data, while others say it's just what the institutions want you to see, especially for altcoins. How do you understand it, and why did you choose it as your trading tool?
Eric
How does a professional institutional staff member view candlesticks? This may be different from everyone's traditional understanding. First of all, candlesticks are not so important in relation to trading volume. They are really not that important. But there are often many derivative interpretations of candlesticks and trading volume in the market, and these interpretations are divided into many schools of thought. The simplest thing is that a candlestick represents the open, close, high, and low prices within a unit of time. In fact, it has nothing to do with so-called market liquidity. Let me give you an example from my experience. When I went to work for a proprietary fund, I definitely looked at candlesticks and brought out my own results before others recruited me. But when I went there, I found that it was very different from what I understood to be fancy or high-end. At that time, there were no candlesticks on the trading screen, just a line chart, and all the other data was bought from third parties. To be honest, I was very uncomfortable. I said, without candlesticks, how can you, according to the analyst, see things like bullish engulfing, bearish engulfing, and whether the candlestick has increased volume and price? But in the process of learning, I found that candlesticks are just a representation of the price within a unit of time. You can't see liquidity, and even candlesticks are an indicator, and they have a lot of noise. In fact, the closing price is the most meaningful, and the other things are not as meaningful. Trading volume is not that magical either. For example, in the market, you can hear a method, the so-called ability to speculate on the intentions of the institutions and the buying and selling costs of the institutions through trading volume (which is baseless).
Let me tell you a very simple thing. First of all, institutions do exist, but they are not like a tailor or a decorator, taking a ruler and a pen, saying I need to place so many orders in a certain place, or buy so many orders, and I need to kill some retail investors. It's definitely not like that. Institutions are actually a collection of intelligence. For example, if we define someone as an institution, normally we can see some of their operations (what they bought and sold), but in reality, they are a collection of governance. According to their capital size, there is definitely a team helping to trade. So, circling back, trading volume and candlesticks are important because as individual investors, it's the lowest-cost way to see market fluctuations, but it's limited to that and cannot help you see the so-called institutional costs, counterparties, and liquidity. These are to some extent derivative concepts. Conceptual things can be expressed artificially and can be understood by people using certain wording, but from a quantitative perspective, many things cannot be explained.
FC
Understood. Let me summarize. The first point is that you believe candlesticks are actually a representation of price, and the second point is that the main players are a collection of intelligence, or understood as a joint force, and they don't correspond to an individual.
Eric
Yes. It's like you buy a little, I buy a little, and as everyone buys, it becomes a joint force.
FC
Understood. Back to the key point, how can we see the expression of the main players at the market bottom and top through candlesticks? In plain language, during this round of Bitcoin, when you were buying the dip, what technical indicators did you look at? In the future, when we want to buy the dip, how should we approach it?
Eric
Before answering this question, I want to provide a definition of technical analysis within my framework. Technical analysis is not about learning a certain type of technical analysis, regardless of the school of thought, and then being able to make money. Instead, various schools of thought can provide an explanation of the market at different time dimensions. You need to use technical analysis to limit your risk. If you manage your risk well, and the market gives you a chance, then you can make money. It's not about learning a specific type of technical analysis, whether it's traditional or currently popular, and then being able to make money. This is a very important premise.
FC
Does it mean it's not 100% guaranteed success?
Eric
In trading, even chart analysts will say to respect the market. What does it mean to respect the market? It means recognizing that I cannot predict the market, and I cannot make money in every market cycle. The reality is that you cannot understand most market movements. After filtering, you will find that there are very few trading opportunities left, and within these few opportunities, it ultimately becomes a probability issue, depending on how you understand the market and construct your strategy. For example, if all your strategies are based on a quantitative approach or data statistics, and every trade you make has a statistical advantage, then in this case, you may have a chance to make money. But if your strategy is very subjective, in the long run, you will have negative returns. If you cannot understand the underlying logic of the market, you will follow the market, and you will no longer have control over your trades. The most common examples of this are found in the stock market, where many experienced investors have been going around in circles for over a decade or two, and can explain all sorts of theories, but in the end, they don't make money.
FC
I roughly understand what you said earlier. Let's go back to technical indicators. For example, in this round of Bitcoin, when did you start building your position? What are some technical indicators you often look at in your daily trading? Or what do you think beginners should start with?
Eric
Let me give you a very simple example. You can just look at moving average indicators. First, you need to accept that you cannot understand most of the market movements. Don't trade within noise. In this case, you need an objective tool, a tool that is not influenced by your subjective will, to become a lever for your trading mindset. The simplest lever you can use is the moving average, whether it's the MA or EMA. This is the simplest logic. For example, when you draw a moving average, regardless of your subjective feeling about whether the market is going up or down, the moving average is there. However, in actual usage, there are voices in the market saying that the moving average is lagging, or that it's a tool drawn by the institutions, and so on. There is a lot of random price fluctuation noise in the market, and you cannot make money within noise. You need a tool to filter out some noise and give you a general direction of the trend. This is the purpose of using the moving average technical indicator. Again, it's just a filtering tool to filter out noise in the market, not a tool that directly makes you money. If using a certain tool could directly make you money, why would Wall Street spend so much money every year to recruit physics and mathematics PhDs? It doesn't make sense. The moving average is a very simple tool to help you establish a trend framework. The simplest rule is, if the price is above a certain moving average, you should mainly go long; if the price is below a certain moving average, you should mainly go short. Once you have this framework, you have a lever for your mindset, and you can continue to iterate your strategy along a repeatable learning path. If you don't have a lever for your mindset, you will start thinking about what the institutions are doing, what the experts are saying, or what the news is saying, and you will end up knowing everything but not making money.
FC
I have a few questions. First, for those who may not understand technical indicators, such as the moving average, how can we express it in a way that everyone can understand? Second, you mentioned that it's a tool for filtering noise. What does the noise refer to? Third, when the moving average reaches a certain state, should I go long or short? Can you provide an example of one of your recent trades?
Eric
Let's start with the second question, what is noise? Whether it's on Twitter or in group chats, when someone draws an arrow on a chart to indicate where the price is heading, it's very foolish for professional traders. If you can see an arrow pointing to the future price, they basically haven't even entered the market. The so-called noise in the price is when the time unit is smaller, and in the long run, there is definitely a trend in the market. You can look at Bitstamp and see that since Bitcoin's inception, it has been rising. This is a trend. However, when you try to enter the market and trade, and you narrow the time frame, you will find that the price is in a phase of fluctuation and oscillation. It's in a long-term trend, but in the short term, it's in oscillation. And in an even smaller time frame, it might be a trend again. This back and forth creates conflict, and this conflict is noise. In more professional terms, the so-called noise is the price battle in the short term.
FC
So, does it mean that when there is no clear direction, it's considered noise?
Eric
You can understand it this way, or put it this way: for example, let's use the EMA moving average. According to traditional technical analysis, there are three types of market movements: uptrend, downtrend, and sideways. When the price revolves around the moving average, and the moving average is parallel, it's in oscillation. In this case, you will likely find noise. This is a framework and does not involve a specific mindset. If there is an opportunity next time, I can explain in detail how to use certain tools to limit your risk and operate, and you will find that you definitely cannot make money in the market just by drawing arrows.
FC
Understood. So, how can we make money using this moving average?
Eric
In trading, you cannot say that you want to make money. You can use the moving average indicator to improve the efficiency of your judgment, which is equivalent to making money.
FC
What other steps do we need to take to improve our judgment efficiency and win rate?
Eric
You can now look at the Bitcoin weekly chart, for example, if you set the MA200 or EMA200, you will find something very interesting. From around January 2023 to September or October 2023, the price was oscillating around the moving average, indicating that there was no trend. Then, around October or November 2023, Bitcoin broke away from the moving average and started to rise. In this case, when the price is above the moving average and the moving average starts to slope, you should mainly go long in this area. After going long in this area, it becomes a framework for judging the market trend. In this case, I keep betting in this area, and my win rate for going long is significantly higher than the cost of going short. This is how you can use the moving average to make money. To simplify, if the price is above the EMA200 or MA200, you go long; if it's below the 200, you go short.
FC
Understood. Does this need to be part of a complete trading system? For example, when a certain market situation occurs, what kind of stop-loss should we implement in order to be successful?
Eric
I'll say, if you want to make money in this market, trading requires two frameworks: a macro framework and a micro-operational framework. The so-called macro operational framework is about the current market trend and what kind of trades you should probably make. If you want to find a more detailed entry point, such as through nesting multiple time frames and using certain patterns and technical indicators to find opportunities at smaller time frames, it's like stacking buffs. I need to open a smaller time frame window, use my own tools to further limit my risk, find key positions worth betting on, and the price will probably rise from there. To put it more simply, for example, using oversold conditions in my channel, the support area of the channel, oversold areas, bullish divergence, and the support of a smaller time frame EMA, I find that the overall direction is long. In terms of the smaller time frame window, I've accumulated enough bullish buffs, and then it's a very mechanical judgment logic. By consistently applying this judgment logic in the long term, you can further limit your risk and ultimately rely on probability to determine if the market can make you money.
FC
I want to ask, you have a community, and if a beginner enters your learning system, what should they generally learn in the first three steps? What should their learning framework be?
Eric
The first point of the learning framework is to let knowledge enter the mind. First, you need to recognize that you are a rookie, and that the market is very complex. It's not about drawing a line, subjectively drawing support and resistance, and then expecting the price to move in your direction. You need to respect the market and not think you're particularly awesome. All my members must do their homework. I'm probably the only one in the market who requires you to do your homework when you join my group, and this makes many people very uncomfortable.
FC
Is it about taking trading notes?
Eric
No, I have already prepared a series of courses for everyone. No matter what you do, the simplest way to progress is to imitate. I've written a script, and after making a video, I tell them to transcribe every word I said in the video. You shouldn't think that you understand it just by watching it once or that you've grasped it. The most basic thing is to learn the basic rules of market price movements, including but not limited to candlesticks, win rate, random distribution, risk-reward ratio, and the underlying logic of technical indicators. From a mathematical perspective, what is it? And how do you understand the price patterns? After learning these, you will probably realize that the market is not as simple as you imagined, where you can just open your phone every day and place a trade, and then make money at any time. The normal reaction should be to understand what's happening in the market, and if you can't understand it in one place, you should go to where you can understand it and place your bets there. I also provide a simulator for 100 real trades, allowing you to buy and sell based on what you've learned. But it's not about blindly buying when a certain indicator appears. It's about applying the knowledge you've learned from previous courses. For example, if the price gives a buy signal and a sell signal, with a 5% stop-loss space, how can you further allocate your position more reasonably to reduce the stop-loss space, or how can you find a more suitable entry point in a more micro time frame window?
I'm actually designing a path for everyone, clearly telling you that trading in the market is quite difficult. All the real trading exercises and homework are meant to force you to think, to realize that things are actually like this. It's a very passive learning process, not just reading a book and doing as it says.
FC
Understood. I think the three steps you mentioned are: first, to reset everyone's understanding of the market, not to always think that you can beat the market, which is a mindset issue. The second step is to strengthen their basic skills and output basic knowledge. The final step is to practice. You provide a simulator for past real trades, allowing them to use their basic skills to reinforce correct operational systems and actions.
Eric
Yes, but that tool is for real trading. For example, if there's a buy signal now, I provide an Excel spreadsheet for this real trade. How many of these real trades have you found? What is the current market framework? When you make a purchase, what should your stop-loss be? How should you allocate your position? You need to record each trade, at least 100 of them. After setting some thresholds, I actually make less money in terms of membership fees, but I really want to teach everyone the methodology. The training I received at the institution is replicable, so I hope to teach everyone something, especially how to correctly understand the market. Once you lower your expectations and understand yourself, trading is actually not that difficult.
FC
The final step is a bit like deliberate practice, right?
Eric
Yes. In the end, to trade well, you not only need to trade but also read more books to enhance your understanding of the market from different perspectives. Coming back to it, "Deliberate Practice" is indeed a good book. I also recommend a book called "The 10,000 Hour Rule," which 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
Understood. I think what has been most helpful for me is trading notes. Although we also use leverage, I write down which token I buy, why I buy it, at what price, my expected return, whether I need a stop-loss, and this serves as an axis for my trading notes. I've been writing for about a year, and the most valuable part is when I look back. Because you tend to romanticize your past decisions, but when you review your trading notes, you will clearly understand why you bought, why you didn't sell, and why you did sell. So, when I heard you mention making everyone do this exercise 100 times, I found it very effective for me as well.
Eric
Regarding what you said about romanticizing, during my live broadcasts, I often tell everyone that romanticizing is like two people in a relationship breaking up and both thinking the other person is a jerk.
FC
I see you're also an emotional blogger. The next question, I've been following your tweets, and I noticed that you've been bullish on TRB recently. Can you explain why you're still bullish on it? What is your judgment logic?
Eric
I can turn into an analyst and tell you, but I can also tell you the truth. In reality, I do quantitative trading, and there are people specifically writing algorithms and optimizing algorithms for me. Essentially, my core trading involves using algorithms to give me an advantage in the market that others don't have, or to look at the market from a different perspective. For example, at noon on July 24th, I saw that TRB had been consistently bought, and I thought this was a very good signal. In terms of the price pattern, it was in the area of the previous low, but being in this area doesn't necessarily mean it will rise. So, at that time, I tweeted very subtly, saying that people had been buying since the 24th, and it continued until the 25th, and then yesterday, TRB rose by over 20 points. In this case, I didn't predict its rise through traditional technical analysis, but rather through my algorithm, which found that people had been buying consistently. I thought this was worth betting on, so I bought it, and that's the truth I'm telling everyone.
FC
So, there was a significant movement.
Eric
Yes, you can understand it as a significant movement. For example, since last October, I've caught most of the market's outrageous altcoins, such as Dogecoin, PEPE, and so on. What I want to tell everyone is that technical analysis has its limits. You cannot always see the average cost of the institutions, or the so-called institutions buying and distributing. You need some mathematical models to understand what's really happening in the order book. But I'll say objectively, even if you know what's happening in the order book, you still can't make money every time. So, when TRB rose yesterday, my first action was to take profit. I don't know how high it will rise, I just know that it did rise, and I bought it in a relatively low-risk area. After it rose as I expected, my first reaction was to protect myself, take profit, and then set a stop-loss. I let the rest of the market move as it pleases. I won't say that people are buying now, or that there are so-called institutions trying to distribute this, because that's not what traders do, that's what analysts do.
FC
Understood. Why did you buy PEPE at the time?
Eric
We have algorithms now. There's a tool in the market called Liquidition, which, from a mathematical perspective, isn't that magical. You can see so-called 25x liquidation, 5x liquidation, and to be honest, it's a good product. However, when describing this tool, there are some tricky and misleading aspects, and it's not at all what people understand it to be. We've developed a product that can show where orders are placed in the order book and, based on statistical data, it can indeed influence the market trend. For example, with the recent target, MEW, we saw a large order placed at 0.0087, when the price was around 0.78. This target wasn't something I actively looked at; it came up during a live session when someone asked about it. After looking at some data, I mentioned that someone was trading it, and that's the situation. This logic transcends technical analysis and is purely a data issue.
FC
When these orders are placed, what kind of information is the market expressing?
Eric
If my professional ethics were a bit lower, I could just package it as a product and say it's the so-called main force placing orders, but that's not the case. We use data statistics to extract a portion from the market's noise, and its orders can indeed influence future prices. For example, with MEW, during its upward trend, we were quite certain that once it reached a certain point, it would be difficult to continue rising, and it would likely experience a period of stagnation. If the market favors us, it will then decline. This is an objective method of viewing the market from a trader's perspective. Of course, if it's just to sell a product, we could simply say it's the main force.
FC
Understood. I saw a tweet of yours about a framework for selecting altcoins, with the first point being to select coins that have gone through a period of brewing, breakthrough, eruption, and decline in the past year, such as YGG and SOL. Let's focus on these two for now, as one is a primary investment and the other a secondary purchase. What does this mean, and can you explain?
Eric
In order to make money, the market needs to go through a standard process, which is a complete cycle. This so-called cycle consists of brewing, breakthrough, eruption, and decline. The brewing process, in terms of specific price performance logic, involves a decrease in trading volume, smaller candlesticks, and minimal short-term price fluctuations. Then, a sudden breakthrough occurs, whether it's an upward or downward breakthrough. For example, in an upward breakthrough, there's a single bullish candlestick that breaks through the key area of previous high pressure very quickly. After the breakthrough, whether it's a so-called five-wave upward movement or an oscillation upward, it continues to rise. After rising, there are fluctuations, and then, as attention or funds are attracted to the market, the price's fluctuations change from being reasonable, understandable, and following a pattern to simply rising and falling, and then rising again, entering an eruption or acceleration phase. In more understandable terms, it's the so-called climax. Finally, after the eruption, the price enters an extreme, irrational fluctuation, which is the decline. Why does the market become exhausted? Because in this situation, it's very easy for everyone to participate. Fortunately, the exchanges limit leverage to 125x. If there were no limits, everyone would be willing to use 1000x leverage. As the price's fluctuations become more intense and leverage increases, once someone starts to sell off, it triggers a chain reaction, leading to liquidations and the bursting of the bubble, resulting in exhaustion and a subsequent price decline. From explosive growth, it transitions into a oscillatory logic, attracting attention and having relatively good liquidity. One of the three major assumptions of technical analysis is that history repeats itself. The logic is that, for example, a double top will lead to a decline, just as it did the last time.
FC
What are the other two assumptions?
Eric
The other two assumptions are that the overall trend of the market follows certain rules and that the market includes everything. The so-called market including everything means that all the news we see is retrospective. Those who receive news in advance have already made corresponding trading decisions, and the price is then presented.
FC
It's like a different world. I saw your YouTube video where you introduced many trading strategies. I'd like to ask, which trading strategies do you think are relatively easy for beginners to use? And for what kind of person or personality are they suitable?
Eric
First of all, the simplest trading strategy is to use moving averages. I explained this earlier; moving averages can help you quickly determine whether something is in an upward or downward trend. If you want a more detailed explanation, you can search for my thoughts on moving averages on Twitter. If you have a certain amount of capital, especially in the cryptocurrency market, what you really need to do is dollar-cost averaging and asset allocation. This is the most important thing. Once your capital reaches a certain level, your main focus should be on making friends with time, rather than trying to make more money through quick maneuvers. Additionally, once your capital increases, you need to consider asset allocation. What I'm about to say may be controversial, so please understand objectively. I tell all my members one thing: trading isn't suitable for everyone. It's best to set a framework for yourself in terms of capital and time before you start learning to trade. This framework means using $30,000 or $20,000 in the market for two or three years. If you can achieve some results within that time, it proves that you've basically mastered the basics and can continue to further your education. If, within those two or three years, you find that you don't know anything beyond drawing lines, it's best to leave the market, as it may not be suitable for you.
I'm very cautious in my Twitter posts and generally avoid using language that could provoke emotional reactions. Many people on public social media platforms tend to make trading seem very exciting and full of dopamine, as if you can make millions with just a few clicks. However, once your trading system matures, you'll find that trading is quite boring, and if you have a stable job and are doing well, you don't really need to trade. Because only a small percentage of people can make money from trading, it's best to set a framework for yourself in terms of capital and time. Otherwise, you might spend several years learning different strategies and experiencing various market conditions, but still not make any money, which is a common occurrence.
FC
Understood. You have a highly viewed YouTube video about the Turtle Trading strategy. Do you think this is a suitable method for beginners to use?
Eric
No. The Turtle Trading strategy is essentially a breakout strategy. Before you try any strategy, don't just listen to the basics; try to understand the underlying logic of the strategy. If the mathematical explanation doesn't make sense, you should proceed with caution. Right now, both moving averages and Turtle Trading are more suitable for a mature market. In a mature market, there will be a sustained trend, such as breaking through previous highs or average fluctuations. However, the cryptocurrency market is still in its early stages and doesn't have a very strong trend. Compared to the US stock market, if you use the Turtle Trading strategy, you'll likely end up going in circles without making any money. That's why I recommend using moving averages, as they are the simplest.
FC
Let's delve a bit deeper into moving averages. If the market is trending downward, and let's say my position is $100,000, and I want to use moving averages for trading, is the core strategy to open a long position when the price breaks above the moving average and to set a stop-loss when it returns to the moving average, and then repeat this strategy? Is this a feasible approach?
Eric
This is a simple framework, not a strategy. For both my current and next purchases, the logic must be the same for it to be a strategy. The moving average is a framework, but to make money in the market, you need a strategy. You need to think of yourself as a robot, executing the same logic for each of the 7 purchases. I often joke that in the morning, you follow one approach, then switch to another in the afternoon, and yet another in the evening, and even go against your instincts at night. If your trading logic changes four times in a day, even with a moving average, you still won't make money.
FC
So, the framework needs to be complemented by a strategy, which essentially aims to increase the win rate, right?
Eric
Yes, you need to think of yourself as a robot, executing the same logic without any emotions, knowing when to buy and sell, and this logic should remain consistent. Any deviation from this, from a quantitative perspective, leads to overfitting. For example, if we use the commonly used MACD to make a purchase, strictly speaking, after each MACD crossover, you should buy. If you made money on the last purchase but didn't buy this time, you're actually undermining your trading logic, and in the long run, your mathematical expectation is negative, so you won't make money.
FC
I hope everyone gains some insights from this. It seems like a systematic learning method, right? We won't delve into it further; people can learn from the teacher's community.
Eric
It's not that I don't want to share, but there's a common saying in the market: will a trading strategy become ineffective once it's made public, and why would someone who's making money want to bring you along? Let me give you a simple example. Only after you've been admitted to Tsinghua or Peking University can you say that you didn't do any extracurricular exercises and still got into a top university. Having studied in China and the US, I've realized that most people, even when given a clear learning path, don't immediately start studying it. Instead, they start by doubting it, and once they embed that doubt into their subjective logic, they feel justified and start optimizing. After optimizing, they become self-righteous and eventually realize they've completely deviated from what they originally learned. So, when it comes to trading, even if I explain the details of various trading techniques, position management, and market conditions until midnight, it's still very difficult for everyone to immediately start making money. After I finish, if you really want to make money, you need to place thousands of trades, validate whether I'm right or wrong, and go through this repetitive process. Eventually, you'll reach a balance, and it's definitely not about using a specific indicator, learning method, or attending a class to make money.
FC
I understand your point. Let's go back to this learning method. Recently, I've learned a lot of new things, and what makes me happiest is that I have a universal learning method. I also noticed that you've been exploring a new field by selecting audio equipment. I believe that if you do something well, you definitely have a unified method to do something else well. Can you share this approach with us?
Eric
That's a great question. To be successful in trading, it's best to have already achieved something in your daily life and then transfer that experience to trading. Once you've achieved something, you essentially have a framework, and within that framework, you won't be thinking about various unrelated things. To do something well, you essentially have the same framework. I've been in business for a long time, and I used to be a professional player in Warcraft III. The underlying logic is that you need to address problems without an avoidance mindset. After addressing the big problems, you need to break them down into smaller ones as much as possible, and each problem needs to be supported by data. For example, when I bought a chair recently, I could have bought any chair if I had enough money. However, during the purchase process, including monitors, chairs, and desks, I created an Excel spreadsheet with their prices, advantages, disadvantages, and delivery times. After listing everything, I had a clear understanding, and then I went to physical stores to try them out. When you open Taobao to buy a chair, you'll find ergonomic chairs ranging from hundreds to thousands of dollars, and they all look the same to the naked eye. However, when I tried them out in person, I realized that there were significant differences. This is one of my methods.
FC
Let me try to summarize. The first step is to understand your own needs. The second step is to consult professionals when buying a chair, abstracting key indicators, creating an Excel sheet, and then mapping it out. Finally, you go to experience and practice it. Is that correct?
Eric
Yes, I'm very satisfied with my current chair.
FC
If we shift to trading, the first step is to determine your expected returns. What are you here for? Are you aiming for 100x or 10x returns, or an annualized return of 50% or 20%? The second step is to find more teachers with different strategies, including yourself, and see how they make money. The third step is to select a profitable or preferred trading strategy and dissect its key indicators. The fourth step, as you mentioned earlier, is to make 100 trades and review them, and only then can you start trading. Is that correct?
Eric
Everything you said is correct. The first point is not about how much you want to earn, but about how to survive in the market. Regardless of how much you want to earn, you need to measure your risk first because your time, energy, and money are all limited. You must use your limited resources to engage in a high-stakes game in the market. This is why I believe I've survived until today and still have the opportunity to chat with everyone.
FC
Understood. Continuing with this question, how do you maintain your bottom line, and what's on your stop doing list?
Eric
This question may be more relevant to my recent smooth sailing. In the short term, there's nothing on my stop doing list. However, in the long run, I believe that just because you've made money and your returns have increased, it doesn't mean you should try to beat the market. You should always maintain a sense of awe towards the market. Even when I had a 100% win rate, I became more and more cautious with each trade, realizing that I needed to be careful because a big loss could happen at any moment. You should never let yourself think that you can beat the market. I basically never say that I want to earn a certain multiple of returns or a specific amount of money. Managing this risk is quite difficult, but once you do, the market will reward you with money, and that's what matters.
FC
I actually think it's like what Professor Qiao said, "stay foolish" and don't think too highly of yourself. These are all the questions I have. Lastly, could you recommend some traders worth following or some books?
Eric
The first is Anton Kreil, a very impressive professional trader who previously worked at Goldman Sachs, Morgan Stanley, and Lehman Brothers. He started trading at 16 and retired at 27. He now mainly trains traders and provides them to hedge funds and large investment banks. He's undoubtedly very impressive. You can find his insights on risk management, market patterns, and money on Twitter and YouTube. The second is Warrior Trading, led by Ross. He also offers training courses, and if I don't learn anything from him, it means I'm not good enough. His strategy is very similar to the trading logic I used in my proprietary fund, mainly focusing on pre-market momentum strategies. During the bull market in the pandemic, he made over $20 million through short-term trading. Both of these individuals provide plenty of free content, from which you can learn a lot.
I also want to recommend two traders, and one of them is Ni Lao Shi. I'll elaborate a bit more on this. When we had our fund, our boss used to joke that after he retired, he would become an analyst. From a trader's perspective, many traders have a neutral view of analysts, wondering why they can make a lot of money and gain fame just by discussing market trends every day. However, as my capital increased and my strategies matured, along with a deeper understanding of the world, I realized that Ni Lao Shi's continuous output is truly impressive. His output isn't about making money directly from the news he shares, but rather understanding the different institutions and players in the current cryptocurrency market. It's not a strategy; it's just news. However, interpreting this news, I believe that Ni Lao Shi's ability to provide such high-intensity analysis every day is truly remarkable. Although most of my trading is still done through my models, I'm slowly learning from Ni Lao Shi's insights.
As for books, I recommend "Outliers: The Story of Success," "Deliberate Practice," and some books on neuroscience, such as "Talent is Overrated."
FC
I actually had a conversation with Ni Lao Shi before, and everyone can listen to it again.
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