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
