Are you puzzled by the latest Bitcoin price
movements?
One of the biggest questions I get from traders
is, why did Bitcon do this or why did the
S&P do that. And I usually say, there were
just more buyers than sellers, you know.
Is technical analysis the only tool to assess
the market with?
If technical analysis is so great how come
people aren’t rich and super rich and successful?
And what are the risks involved in crypto
trading? Leverage, Leverage kills, it just
does.
Learn the basics of crypto trading and technical
analysis with John Bollinger, Charlie Burton,
Tone Vays And Big Chonis.
These are the highlights of Cointelegraph
crypto traders live!
I always prefer TA on the most liquid markets.
And while I really like doing TA on the Bitcoin
market, I hate looking at TA in anything other
than Bitcoin because it's just too illiquid
and it feels like penny stock trading, which
I hated doing TA on as well. What are your
guys thoughts on what John just said? Let
John kick us off as far as well as if TA on
crypto works well, I personally think it begins
and ends with Bitcoin versus the dollar, but
maybe you guys have different thoughts.
Tone, I'll just start yeah, I agree that TA,
for me, works definitely best just using Bitcoin
kind of as my standard there. I agree that
a lot of the altcoins, especially the ones
that have a lot of low liquidity, do trade
and do look a lot like the penny stocks, which
you really can't get the best TA on because
you get wicks in crazy directions and you
don't have really the volume that shows you
the true price discovery you're looking for.
But in terms of Bitcoin, let me just start
with basic TA moving averages, exponential
moving averages, all the oscillators we use.
They're very clear, I feel, in terms of what
they're showing, in terms of patterns. And
most recently here, when we just had this
breakout, everything was kind of lining up
that we would kind of have a very volatile
move. The Bollinger bands, of course, on the
daily chart were extremely tight, pinching
and showing that we were about to get something.
And then when you see where we are in terms
of where we are, in terms of the moving averages,
how the price action has been above the meaningful
ones, 50, 100 and 200, it seemed like the
bulls had the upper hand on this, and that's
what we saw in the price action.
Charlie, do you have anything to add on this?
As far as I'm concerned, I mean, I'm a technical
analysis trader myself, but really the one
thing that I find out there. It doesn't matter
what market and what type of trader you're
talking to, they all want to be right as much
as possible. But I don't care about being
right as much as possible. And we all know
that you don't have to be right that frequently.
And I think that's the main thing for me with
technical analysis. It's not necessarily about
trying to be right 80 percent of the time
in your analysis, I'm quite prepared to be
wrong as long as my risk reward is there for
me. So if I can get a half decent risk reward
on some of these moves that are there, then
does it matter if I'm wrong 50 percent of
the time or even 60 percent of the time - it
doesn't. One of my most, one of my best technical
analysis strategies I have is actually about
40 percent, 40, 45 percent success rate. And
yet it's the most profitable one I have.
Now, so if you think about it, there are two
major avenues to profitability in technical
trading, in all trading, for that matter.
One is your frequency. What percentage of
wins do you have? Can be 40 percent, can be
60 percent. It's just a number. And the other
is the size of your winners versus the size
of your losers. So I'm guessing that Charlie
has a system if it's only 40 percent effective
and but yet it's making money. So probably
has a win loss ratio of two or three to one
in terms of the size of the winners versus
size of the losers. And if starting traders
would think about the relationship between
those two sets of numbers and would really
look at them in their own trading process,
they would improve very quickly. I think.
Risk management was just mentioned earlier
because technical analysis may not be the
most important thing in its trader's arsenal.
So before we get onto the actual technical
analysis tools, I decided to really quickly
grab a slide from a recent risk management
workshop that I did. And in this slide, I'm
literally I grabbed a page from Welles Wilder
Junior's book from 1978 "New concepts in technical
trading systems". And it was like a 70 page
basically manifesto on technical analysis
with one page, it being been devoted to risk
management. And here's what he writes. The
message of this book is that there are three
parts to a good technical trading plan using
a good technical system, using the system
on the right markets at the right time, and
using a good money management technique. Of
the three, the third is the most important
being money management, the easiest to learn
and the hardest to do. And then and what I
did with the slide, I basically said, hey,
there are infinite amount of places where
you can learn technical analysis. I teach
technical analysis and I do my best to teach
you proper risk management and how not to
lose your entire account on one bad trade.
But it's going to be the hardest thing for
you to do. But number two, I can't teach you
using the right technical system on the right
asset, on the right timeframe. And I think
that is also a challenge that a lot of traders
need to solve. And those that can't solve
it end up being followers of other traders.
So what do you guys think about this dynamic
of learning technical analysis, knowing how
to apply technical analysis and making sure
that you have good money management and risk
management? So let's head over to Charlie
and we'll start with you, because you do have
groups and newsletters. And what do you think
about this dynamic and how should a new trader
manage this dynamic?
Well, I don't have newsletters anymore. That
was years ago. But I do have groups. Yeah,
I think there's a couple of things here. We've
talked about groups and followers and stuff,
and we all have them. A lot of people are
looking for help and they're looking for people
who have got experience in the markets for
help. And so I'm quite happy to provide my
experience in that regard. Wherever I can
help people, then that's a good thing. But
as always, it is the most important thing
is what we emphasize is good risk management.
The problem that a lot of people have is they'll
look at a chart if they're a technician or
maybe if it's fundamentals going on and if
they really believe everything's lined up.
And as you guys know, sometimes you can look
at a chart and you can think, wow, that has
got everything lined up. And what happens
to those average traders? They bet the farm
on it because they think, well, all of my
indicators are aligned. The heavens have aligned
for me. And that's the natural tendency for
most traders to then think I'm going to bet
the farm on that. But so often the ones that
we think are all lined up are the ones that
actually fail and the ones that we actually,
in our gut feel most uncomfortable about are
the ones that actually work. So, yeah, coming
back to your first point about risk management,
I mean, we just say to our traders, risk up
to one percent per trade.
And if you stay below one percent for every
trade, then you're pretty much going to keep
yourself safe. You can sustain a drawdown
when drawdowns come along, but you can still
make some decent gains and have some good
results with that type of risk per trade,
you can build your trades and build into them
and all of that sort of stuff. But if you
start out at a maximum of up to one percent
risk per trade, then I think that's always
a good advice.
There are two aspects to this risk management
piece. Number one, Charlie touched a little
bit on it, I have to disagree with him a little
bit. It's the amount committed to each trade
and there are very good formulas for determining
how much you should commit to a given trade.
I really commend everybody, the work of Ralph
Vince. He's done more on position sizing than
I think anybody else. It's very mathematical.
And if that's a little bit too mathematical
for you, perhaps another practitioner, Van
Tharp, who has written extensively on position
sizing, might contribute to that. The second
thing is the second portion of money management
for me, other than position sizing, is some
sort of risk control. I personally like trailing
stops. I've written a couple of my own trailing
stops, but Welles Wilder's suggested one is
called "parabolic". It's sort of a relentless
approach to a trading stop in that increments
each and every period, no matter what. I prefer
the work of Chuck LeBeau. These are called
"chandelier stops" and they progress as the
trade progresses. So if the trade stalls,
the stop will stall. That's the big difference
between those two approaches. But they're
both progressive levels that will keep you
out of trouble. So position sizing is absolutely
key. I think you should try to determine what
it is in a formulaic manner. But, you know,
a fixed number can work as well. And then
the second piece is some sort of risk control.
And for that it's trailing stops for me.
All right, and, Big Chonis, tell us about
your any, like, lessons that you and your,
you said you've been training for about seven
years. Any horrifying experience of not following
good risk management rules you want to share?
Sure.
All the time, actually. You know, being able
to control FOMO in this market is incredibly
important. Bitcoin, for the most part tends
to range. And then every once in a while,
like we've seen the past week or so, has a
big move. So it's great that you're able to
capitalize on those big moves.
But during the times of consolidation and
arranging the WIX, we see because of the leverage
market that Bitcoin is in, in both directions,
can reckon account, especially an account
you use on leverage trading.
So, you know, in terms of me and how I approach
risk management, obviously never want to put
all your eggs in one basket or one trade.
There's always another trade. You know, if
you have a chart that you're watching and
you miss your ideal entry or it does something
and you just aren't there to make the trade,
preventing yourself from chasing into the
trade after you've missed your ideal entry
is so important. And the more I trade, the
more I become more conservative I found in
my trading. When you're new to trading the
temptation to up your leverage and to turn
a thousand, make a thousand look like fifty
thousand with like a you know, 10x move or
a 50x trade and thinking about oh my God,
I could make a ton of money if Bitcoin has
a huge pop there.
But what the crypto markets tend to do is
to kind of screw people on both ends of the
trade. You'll get your Darth Maul week that's
that liquidates your longs. Liquidates your
shorts.
And in the end, the closing body kind of stays
more or less where it was. And that's what
we continue to see in this Bitcoin market.
So preserving capital risk management is the
most important thing, because I think the
term "rekt" is thrown around a lot these days
because people get wrecked very easily.
And the volatility in these markets, especially
in altcoins, can come so quick. And if you
don't have a stop loss in, if you're not protecting
your capital and if you're not protecting
your winners, you know, it's OK to take a
win. I think people, when they're up in the
trade and they're not used to being up in
a trade, don't know what to do. They're thinking
they hit the generational entry, if you will,
and they're kind of just let it ride. And
those are never they just never work out that
way. You know, that's why I look at trading
as terms of, you know, scalping and swing
trading and each trade individually. I'll
take a lot of trades and try and make a few
bucks on each trade. Where I kick this one
off with Mr. Bollinger.
And I'm gonna get very specific. We're going
to get right to the meat. What are your favorite
technical analysis tools? But I'm going to
remove the obvious stuff. So no candlestick
patterns, no chart patterns like triangles
or cups and handles, no moving averages. So
we're talking straight off TA tools. Name
three. One of them can be an overlay like
Bollinger Bands or Ichimoku Clouds or in a
parabolic star, something that overlays on
the price and two of them oscillators, your
MACD, your RSI, your ADX, how about it. So
what are your favorite TA tools that aren't
obvious that everyone else uses?
So this is what we call a fat pitch. It's
obvious. For me it's Bollinger bands as the
overlay. And then the two indicators that
I would use as oscillators are Percent B which
tells us where we are in relation to the Bollinger
bands and bandwidth, which tells us how wide
the bonds or bands are. But, you know, having
said that, they're, especially in the crypto
space, there are a ton of other TA tools that
work really well. We talked here a bit about
moving averages and such, they can provide
some useful information that classic overbought,
oversold oscillators such as RSI and Stochastics
are quite useful. And I really like intermarket
analysis in the crypto space. So I don't look
at the tiny illiquid coins. I do watch an
index of them that ship purp index. I find
that pretty useful. But I look at the, I look
at the other major coins where there's a lot
of activity, Ether and Litecoin, stuff like
that. And I think that goes that work goes
back all the way to Bill Ohama writing so
long ago he called this a 3D method of trading
is just look at related things and see if
they're confirming your analysis. And I find
that very, very useful in the crypto space.
All right, thank you, John. Charlie, let's
go with you. OK, so very briefly, I do use
moving averages, so I've taken quickly taken
those off. As you said, they're not allowed.
But as you can see on the chart here, I've
taken some moving averages off, I use a MACD,
I like using an AMCD indicator for divergences,
find that works really well against support
or resistance. So that's a favorite of mine.
And just price action and trend lines and
horizontal support and resistance literally
just putting on those horizontal support and
resistance. This is a chart of euro/dollar.
I know we're talking Bitcoin, but I've just
bought this one up because I think this has
been a beautiful pattern for such a long time.
This building, long term trend line going
all the way back to 2001. If I actually put
this on to a maybe a quarterly chart, you
better see it a little bit easier here. There
we go. All the way back to 2000, this beautiful
long term trend line that we keep on coming
back down and bouncing around. That's what
we're bouncing off at the moment. Then we've
got this declining trend line from the the
highs of 2089. And so that's to me is beautiful
chart there. And that's why I've been observing
that we've got a couple of horizontal areas
of actually the first red line here, that
first red line going back to 2018 that around
114 on euro/dollar has been kept on coming
back up to test it. And I love it when price
comes up to a resistance level or a support
level and it keeps on bouncing, against it
because at some point it's probably going
to break through on the technical analysis
rules. So basics really price action, horizontal
support and resistance and trend lines and
MCD. There you go. That's what I use.
Chonis, what about you? What are your favorite
technical analysis tools other than so one
overlay and two oscillators.
So I try and find what are the best are set
ups for me, you know, best risk reward. So
I'm not kissing up here, but the Bollinger
bands are a big part of my TA. I do like to
use them. I have rules for how the price action
responds. And let's say the one hour chart,
the six hour chart and the daily chart, very
curious in terms about the higher timeframes
as well. In terms of my oscillators, I really
like to use the RSI and the stochastic RSI.
I adjust my RSI and stoches settings slightly
higher. The default for the RSI is 70-30.
I go 80-20 and then the default for the stochastic
is 80-20. I go 90-10. And basically what that
means for me is when the stochastic RSI when
both of our indicators are swimming above
90 or below 10, those are times when I'm saying,
OK, is this an opportunity to long or to short?
I do not long when the 15 minute RSI and stochastic
RSI are above these lines. And I would consider
a short or I consider a long and would never
short if they're on the lower end of the oscillator
spectrum. And that just gives me a sense of
where we are and the overall kind of wave
pattern and where I can have my best chance
to trade when these oscillators are kind of
in the middle. For me, that's kind of no man's
land and I don't see the clear signal to potentially
take a train. So I'm looking for extremes
in those oscillators, mostly on lower timeframes,
because I'm more of a scalper and then try
and take advantage of those.
And those kind of offer me my best RR. I was
just going to rad at you, just interested
in the overboard stochastics RSI. I mean,
the one just interesting just because for
me I'll look at a chart like that if I put
those types of indicators on, if I see them
overboard. We all know that markets can remain
overbought for longer than you think. So is
there another trigger that you'll use? Because
sometimes you'll get your RSI, or stochastic
will get up there and it will sort this wiggle
along the top as the market just trends. So
do you use anything else to actually help
you to decide to actually this is coming off
and it's not actually just a strong trend?
So these rules work best for me in a five
and a 15 minute timeframe. I absolutely agree
with you, especially in Bitcoin, that on the
higher timeframes daily, weekly, especially,
you can have oscillators pegged way high.
And that doesn't necessarily mean it's overbought.
Therefore, I must sell. We saw clearly with
the weekly stochastic RSI that it was pegged
at almost a hundred, for weeks, basically,
during the big run of 2019 and a very frothy
RSI as well. So you're absolutely right that
a market can range and still rise while these
oscillators are at their peaks. But that's
why I only use these specifically for the
very lower timeframes, because I'm not looking
for a trend change. I'm looking for an opportunity
of a trade.
Hey guys, let's move on to this dynamic between
fundamental trading and technical analysis.
So technical analysis is basically a new tool
and the millennials and the new generation
is falling more and more in love with it.
But how much are the big institutional markets
are taking TA seriously?
And do you think that the amount of people
that are investing in general is rising for
the more towards the TA side because institutions
are still all about fundamental analysis.
And what do you think that dynamic is? And
do you think an at home retail trader even
has a chance to compete in the fundamental
analysis game? Because I honestly don't think
he does. But I'm curious about your thoughts.
Yeah, the FA part of Bitcoin is really fascinating.
It kind of, there's so much more than TA that
is available to analyze with Bitcoin, you
know, on chain volume and other indicators,
minor profitability, all these things that
you don't necessarily see on your Bitcoin
chart but can have a tremendous impact in
the price action or determining what the future
price action can be. I think a lot of altcoins
tend to drive on news events, potential partnerships
with bigger companies or something that tend
to kind of move the price action, sometimes
more than the actual chart is suggesting.
So FA does play a big role in this. And I
think what I'm trying to do is enhance my
FA side. You know, I feel like I'm pretty
strong on the TA side. But in terms of the
FA side, when it comes to Bitcoin, there's
a tremendous amount that you can study that
can give you a lot more insight and data,
I think, than the TA side can necessarily
show you.
And Charlie, what do you think about the fundamental
analysis versus TA analysis and what do you
think about people that tend to confuse news
events that they hear with fundamental analysis?
Because I always love to separate the two.
Well, yeah. I mean, I think it comes down
to innate human nature. We need to understand
why something happened. And fundamental analysis
sort of helps out in a desire for people to
be able to justify why something happened.
One of the biggest questions I always get
from traders is, Charlie, why did the S&P
do this or why did Bitcoin do that? And there
has to be a reasoning and a sort of a fundamental
reasoning as to why Bitcoin breakout broke
out last week or this week. And I, I usually
just say to yeah, there was more buys and
sellers, you know.
But but coming back to your point as well
about fund managers and the snobbery sort
of element to where we don't use technical
analysis, and yet you look at some of the
greatest traders of all time, and I always
go back to the likes of market wizards. And
you look at Paul Judah Jones and Ed Koch and
Richard Dennis and some of these famous traders,
they used a lot of technical analysis in their
approach. So and I think for certainly for
the average retail trader who is probably
trading over a shorter time frame, then market
sentiment is more important in the shorter
term than fundamentals, in my view. So you
can derive market sentiment from the charts
a lot of the time and some of these sense
measures themselves. So I think for the big
players, the big funds than fundamentals are
important because they're trying to understand
those macro trends which are important to
the time horizon they're looking at. But a
trader who's looking to be in today and be
out next week, I don't think it's as much
a person. I don't think this is important.
There's a point to make. And Charlie's idea
there is that, you know, there are no people
that do not use technical analysis. It doesn't
exist. There are no pure fundamentalists.
They just simply don't exist. You show me
a fundamentalist that has never looked at
a chart and I will show you a pure fundamentalist.
But they all look at charts. Right. So it's
a really important point. They're all practicing
rational analysis. They're all using technical
analysis. They're just not admitting it.
So here comes a tough one to put you guys
on the spot. If technical analysis is so great,
how come people aren't rich and super rich
and everyone is so successful trading? And
why is it difficult? I have my answer, but
you guys are a panelist. Why is it so difficult
to wrap your best technical analysis thinking
into a script that automatically trades your
market profitably, perpetually? What is holding
that up? So I guess, you know, let's start
with Chonis on this one.
Yeah. It's understanding how to trade a specific
time frame. You know, if you're using TA based
on a one hour or four hour, it feels like
it's very important to have a sense of that
particular trade. That's for me would be more
of a swing trade.
I would expect to be in this trade four hours
a day, maybe several days, because I'm on
that higher time frame. If I'm on a lower
timeframe of five or 15, I'm looking for a
scalp trade. I don't expect to be in this
trade more than 10 minutes to a half hour,
probably, max, or also probably didn't have
like the the best entry in it. It's a great
question because we have these tools that
are supposed to show us the way. Either here's
a buy signal or sell signal, but the markets
don't necessarily then trend in one direction,
look straight up or straight down along the
way, you get your your troughs with stop outs
throughout it. So even though you can have
the best TA and really trust your tools, then
you have the forces of other traders, bot
trading, the exchanges themselves. And it
behooves the exchanges to get you out of your
position, you know, so you're kind of fighting
against all these things uphill. So I trust
my TA but you have to understand how to use
it in the context of the time frame you're
actually applying it to.
Charlie, let's go over to you and we'll save
John for last on this one.
I'm going to pick up on the first element
of your question, which is why a technical
analyst, not not rich or whatever it was,
you said something about the richest people.
Some of them are. Some of them are. But they
a that if I learned technical analysis, I
will be a gazillionaire and there is reality
somewhere in the middle between those two.
Yeah, well, certainly the average retail trader,
the problem they have is they have a very
short time horizon and they think that they
can read a book and then become a, as you
said, a gazillionaire.
And and they forget about this whole thing
called volume in the market and that they
think that if I just carry on compounding
at 10 percent a month and I start off with
my ten thousand pounds or ten thousand dollar
account, then yeah, I'll be worth trillions
in a few years time. It doesn't quite work
that way.
But, um, the other thing was with most technicians,
as you said, they're the good guys either
just carry on just trading their own money
or actually become money managers.
And so the very wealthiest people, traders
out there are money managers, just mention
any name.
And John, I'm sure you've been a money manager
and maybe you still are. So, yeah.
So the wealthiest guys tend to manage other
people's money because it's the easiest way
to trade very large sums and to derive performance
fees on the back of that.
I would say that the reason for lack of success,
whether it's huge success or just success,
period, there are two reasons. First of all,
discipline, specifically a lack thereof, and
emotions which cause a lack of discipline.
That's the big problem for traders. And then
if you want to have one more piece in that
puzzle, leverage, leverage kills. It just
does. Every time. You look at every major
financial problem and the bottom line was
leverage every single time. So the overuse
the leverage, allowing emotions to rule your
process and the lack of discipline.
Those are the reasons that people don't get
wealthy or even rich or do well or lose all
their money.
I have a follow up question to money management,
but we have a good question from the audience
that fits into exactly what we're talking
about. Are bots better than humans in trading?
Are emotional trades a good thing for market
volatility? So what are your thoughts on putting
your ideas into a bot versus have doing it
yourself or does it depend on the person?
Bots are fine. They work perfectly as long
as the market remains kind. When the market
turns wicked, the bot dies. That's just it.
And if you're fast enough to turn it off and
pick another approach or another bot, then
you can be successful at that. But bots are
only able to trade the markets that they're
matched to. And and markets evolve and change
all the time. So there you go.
And how do bots affect technical analysis,
do you guys think? Charlie, answer both questions.
Yeah, I mean, I'm I've never been a fan of
bots. You know, you look at the institutions,
they have very, very deep pockets for developing
all sorts of elaborate quantitative systems.
And yet you get your average retail trader
who wants to develop a bot and have it scalping
all day long. And the problem is with very
short time frames, is that there's always
going to end up in execution errors at some
point, even with a with a system. So my view
is that, yes, they are useful, but as a as
a supporting tool to the trader. So they can
be a great support tool from a testing perspective
and from an alert perspective. But the trader
still uses their skills to then take the signal
and decide whether that signal is a good signal
or not. Much like any discretionary trader,
anyone here who we are all looking at the
charts, I'm a top down trader. I use the higher
time frames and go down to the smaller time
frames and you can make that that decision
based on your experience as a trader. But
if you just let a robot, just trade, it's
not really going to be able to do all of that.
And as you said, they can come and go very
easily with a market environment when that
changes, just like what we saw back in February,
March this year. And so I'm more pro full
automated bots if they are trading off of
higher time frames than if they're getting
caught up trying to scalp all day long, which
I think are much more dangerous in my view.
So this is my last question to you guys. And
you know what? Let's kick it off with with
you, John. If you can go back in time and
give a young you, you know, some advice about
technical analysis, what would it be and at
what point in your life?
Um.
It would be to get much more serious about
technical analysis much sooner and to pay
a lot of attention to the classics, those
books that were written 50, 60, 80 years ago
by the likes of Wickoff and Drew. Edwards
and Magee.
That would be me. Charlie, how about you?
To my young self, I would say focus. One thing
that I did most traders do in the early years
is I was a searcher like so many people are,
and I went from system to system, from indicator
to indicator and never really got anywhere.
And the late Mark Douglas, I met him maybe
20 years ago, and I remember him saying to
me, if you locked yourself in a prison cell
for six months and I just gave you a 10 period
moving average, I bet you after six months
you'd be able to make money because that's
all you had.
The problem we all have nowadays is so much
choice that we we just jump around too much.
So if I could go back to my former self, then
I'd say focus on a few things and get really
good at those, you know.
Very excellent point. Excellent point. Charles,
how about you?
Knowing when to take a win has been one of
my things I've been battling with the trades
for a while. When you're in a winning trade,
protecting that is so important. I can't tell
you how many times when as a young trader,
I was in a winning trade that became a losing
trade very quickly because I just didn't want
to take the win. I wanted higher. I wanted
more. And in waiting and not selling, it just
cost a lot of money. And real quick, you know,
scaling into trades, you never will hit the
bottom or the top.
But if you don't scale in, if you put all
your eggs in one initial entry, you don't
have the leeway to dollar cost into that trade
more effectively. So nibble into a trade,
nibble into a position, and you'll have more
options on how you can trade it.
All right. Hey, thank you so much, guys. We
are done right on time. Let's make room for
our next panel. Once again. We had Big Chonis,
Charlie Burton and the one and only John Bollinger.
Thank you so much, guys, for joining this
Cointelegraph trading experience. It has been
awesome. Thank you, guys.
Thank you. Thank you.
