Diálogo con el trader Benson: ¿Cómo ganan dinero quienes utilizan el trading basado en datos?

This episode of Dialogue Trader invited @BensonTWN , the founder of CoinKarma. Thanks to @sky_gpt for introducing us. Benson shared in great detail the changes in his trading strategies in different cycles and how CoinKarmas indicators guía trading in different market conditions. After chatting, I have a feeling that Benson has always used a non-consensus way to think about how to build his own trading structure to outperform others, because in essence, contract trading is a game of how to win most people.

*Todos los textos son sólo para compartir y no constituyen ningún consejo de inversión.

Resumen

1. About trader Benson

1) ¿Cuál es la estrategia comercial?

• En mercados volátiles, Benson encontrará una posición con un mayor margen de seguridad basado en indicadores para participar en el mercado; al mismo tiempo, presta atención a indicadores como la entrada de BTC y el CVD de cambio para juzgar las tendencias del mercado.

• Benson ha dedicado la mayoría de sus posiciones (más de la mitad) a estrategias cuantitativas para la apreciación basada en monedas, principalmente acumulando y manteniendo monedas; alrededor de 40% de sus posiciones son principalmente monedas estables, que se utilizan para la guerra de guerrillas, participando en transacciones en cadena o transacciones de contratos de primer orden.

• La estrategia comercial de Benson no busca un crecimiento explosivo, sino que se centra en la estabilidad. Su objetivo es superar al mercado, con un rendimiento anual de aproximadamente 2 a 3 veces.

• Los distintos objetivos tienen distintos métodos de operación. En el caso de los objetivos que pueden convertirse en puntos calientes del mercado, Benson los mantendrá hasta que el mercado preste atención o termine el mercado alcista; en el caso de los tokens con mayor capitalización de mercado, utilizará el análisis técnico o el análisis fundamental para determinar la posible tendencia de precios.

2) ¿Por qué surgió tal estrategia comercial?

• Initially, Benson, like many novice traders, frequently stopped losses and suffered heavy losses due to chasing ups and downs. This experience made him realize that market fluctuations are often manipulated by major funds, especially in the contract market, where major investors create fluctuations to harvest retail investors with weak liquidity. Contract trading is a game of how to win over most people, and to defeat most people by being consistent with the direction of the major investors. For this reason, Benson began to think about how to use data to follow the operations of the major investors.

• From 2019 to 2022, Benson found that funding rates had a significant impact on trading. When the contract open interest is high and the funding rate is extreme, the market may reverse. Benson made a profit in the bull market by operating against market sentiment.

• However, in 2022, the Federal Reserve began to raise interest rates. Benson believes that the Federal Reserves interest rate is like a stabilizing force, affecting the entire financial market and determining how to price risk assets. Bitcoin has never encountered such a rapid rate hike in its growth cycle, which has affected the sensitivity of the funding rate in the currency circle and caused Bensons original trading system to fail. Since then, Benson has begun to study order book data and developed the CoinKarma indicator to find a safer trading position.

2. Benson’s Trading Indicators

1) About the market

• What data should be used to guide trading in one-way and volatile markets?

• A cycle can be simply divided into one-way market and oscillating market:

One-sided market: A one-sided market that rises or falls rapidly usually lasts for a short time. Take this year as an example. The market that lasted for more than a month from the end of January to mid-March was a one-sided market. At that time, it was observed that the market buying intensity of major exchanges with large spot trading volumes was very strong, and the net inflow of funds into the BTC ETF was also very exaggerated.

Oscillating market: After the end of a one-sided market, the market usually enters a range, and the price of the currency fluctuates widely in this range. The oscillating market occupies most of the time in the entire market. For example, in the past six months, Bitcoin has been in a wide range of fluctuations, with the bottom at about 50,000 or 60,000 and the top at 70,000.

One-sided market is relatively rare, while volatile market is more common. When judging the market, you can judge whether it is a one-sided market or a volatile market by observing indicators such as the CVD (Cumulative Trading Volume) of the exchange and the netinflow of the BTC ETF.

• CoinKarma is a data website developed by Benson. It obtains order book data by accessing the real-time API of mainstream exchanges with large spot trading volumes, and converts this data into indicators through some algorithms to help traders judge market conditions.

• Overall LIQ (Overall Liquidity Status) is an important indicator in CoinKarma. Its principle is to determine the possible reversal point of the price by depicting the liquidity status of the market. Specifically, CoinKarma obtains order book data by accessing the real-time API of the exchange, and then pieces this data together into a database to depict the current liquidity status of the market. When the price approaches the upper or lower limit of the range determined by Overall LIQ, the market is likely to reverse. In a volatile market, it helps traders find a position with a higher margin of safety. For example, in the wide range of Bitcoin fluctuations in the past six months, the Overall LIQ indicator can basically accurately reflect the local top and local bottom.

• CVD (Cumulative Trading Volume) is another indicator used in CoinKarma to judge the market situation. It judges whether the market is volatile or unilateral by observing the strength of market order. When the order book is under heavy selling pressure, CVD is not strong, and market order is not strong, the probability of a decline is higher, and the market can be judged to be in a volatile market; conversely, when CVD is strong and market order is strong, a unilateral market may be ushered in. For a more detailed description of these two indicators, please refer to Bensons tweet: https://x.com/BensonTWN/status/1829126733330821181

• How to determine the cycle through data?

• The high point of the market is usually characterized by the fact that many people outside begin to pay attention to the field. For example, the peak of NFT was in the first quarter of 2023, when many Web2 and Web3 projects were linked to NFT. In the last round of bull market, Coinbase APP ranked in the top three among North American financial APPs for a long time, but its ranking has not reached this level at present. The number of views of Bitcoin page on Wikipedia can determine whether there are signs of large-scale entry of retail investors.

• If Bitcoin wants to break through its historical highs, or if an asset wants to break through its previous highs, there must be external capital involved, which is difficult to achieve with on-site funds alone. For example, this year, Bitcoin rose from the end of January to mid-March, forming a one-sided market, because it was observed that the market buying strength of major exchanges with large spot trading volumes (such as Coinbase, Binance and Bitfinex, etc.) was very strong, and the net inflow of BTC ETF funds was also very exaggerated.

2) About altcoins

• Why are you optimistic about SOL?

• Technical perspective: In the cripto market, most public chains with large market capitalization and a large number of users are EVM-compatible, but Solana is different. It is written in Rust. This means that developing applications on Solana requires developers to learn a language from scratch. In terms of application purity and developer level, Solana is significantly higher than other chains.

• The communitys value has won the support of core developers: Solana has experienced the collapse of FTX and the FTX Creditors Committees plan to sell coins, but in the most difficult times, it received vocal support from Ethereum tycoon Vitalik and MakerDAO founder Christensen, as well as support from the external ecosystem, demonstrating strong community cohesion and anti-fragility capabilities.

• From the perspective of the ability to rise from the ashes BTC pair price: After going through many difficulties, Solanas trend is still able to keep up with the market. It is one of the few Altcoins that has not entered a long-term downward trend in the BTC trading pair since the last bull market. From the perspective of price trends, fundamentals and cyclical rebirth, Benson believes that if you want to choose a target that may break through the high point of the last bull market, Solana has a higher chance. Solana is a target that has the potential to break through the previous high of the previous cycle.

3. Benson’s Trading Experience

1) What kind of thinking is required for high-win trading?

• Benson believes that the main force liquidates by creating price fluctuations, pursuing the maximum return at the minimum cost. Only when investors understand the source of market fluctuations, the main body of fluctuations, that is, the market main force, and the cost and potential benefits of their fluctuations, can they better understand the operation of the market and formulate appropriate trading strategies. After having a basic understanding of the market, they can develop their own trading strategies to win in the market.

• To establish the right mindset, you need to realize that most people in the market use technical analysis to trade, so you need to have a different perspective or focus on different things. For example, when using technical analysis tools, you need to consider the reflexivity of trading, think about what many people will do when they see the same pattern, and then make different decisions.

• The effectiveness of an indicator will change. Sometimes it is useful, and sometimes it is useless, which means that the effectiveness of this indicator is decreasing, and it is necessary to find a new deterministic alpha to adapt to market changes.

2) What is the daily trading routine?

• In the morning, I first look at the market liquidity overview. Through the liquidity of mainstream currencies and the overall market released every hour in the Telegram channel, I judge whether I need to take action and only intervene in the market when reversals are more likely to occur. Based on the certainty of the opportunity, I decide whether to operate net long, net short, or simply hedge the spot position leverage long, leverage short.

• Check whether the existing holdings of altcoins meet expectations and whether the reasons for continuing to hold them still exist. If expectations have been met or the reasons for holding no longer exist, choose to sell.

3) How to avoid big losses in trading?

• Avoid buying tokens the same way as buying stocks: Invest in some tool-type projects with seemingly reasonable PE ratios, but due to the rapid changes in the cryptocurrency circle, these projects may collapse when the hot spots fade. Benson believes that when investing, more emphasis should be placed on projects that have a hazy beauty and imagination but have not yet been fully implemented, rather than pure tool-type projects. At the same time, attention should be paid to whether the demand for the project is the last long demand and will not fluctuate greatly with the changes in the cycle.

• Sell in time: When a project has reached expectations or the reasons for holding it no longer exist, it should be sold in time.

• Control leverage: Leverage is generally high in the cryptocurrency world, but the volatility of the cryptocurrency world is large, and using high leverage can easily lead to being harvested by the main force.

Registro de conversación

FC

We have invited Benson to our Dialogue with Traders show today. Previously, when we were discussing whether there were any good traders to recommend, someone mentioned you. I also reviewed your trading history and process afterwards. Now my understanding is that you mainly use a data-driven trading system and have productized this data, such as the COINKARMA indicator you made. Today we will talk about your story and experience around your trading strategy and this data.

We will talk about this in several parts. First, lets talk about your trading and personal background, and why you formed your strategy. Then, we will analyze your trading strategy in depth so that everyone can better understand your operation method. Finally, we will talk about your personal growth experience and self-iteration process. Can you briefly introduce yourself?

Benson

OK, thanks FC for the introduction. Welcome to our Twitter Space today, Im Benson.

I started to trade in the cryptocurrency circle full-time in 2019, and it has been more than five years now. At first, like everyone else, I didnt have too many ideas of my own during the trading process, often chasing ups and downs, and frequently stopping losses. After about three months of trading, I gradually realized some truths. What impressed me was that in the first one and a half months, I lost 8,000 US dollars, and the maximum loss reached 50,000 US dollars. So the trading experience was not good at the beginning. Later I realized that there were actually main forces behind the market in the cryptocurrency circle. They controlled and raised prices through the spot market, and then harvested leeks in the contract market. I realized this after losing about 50,000 US dollars.

Then I started to think, if in the long run, the main players in the market are always the ones who make money, they create fluctuations and attack those areas with weak liquidity and easy stop losses, then is there a way for me to follow the main players to operate? Between 2019 and 2022, there was a period of time when the funding rate was very favorable. For those who started playing contracts earlier, like me, who pay attention to data, they should be able to feel this clearly. As long as the contract holdings on Binance, BitMEX and some other mainstream exchanges reach a certain level, if the funding rate presents an extreme value, such as extremely high or extremely low, it is very likely to trigger a reversal of the market.

Then I found that when the contract holdings are high and the funding rate is also high, it means that more people are aggressively long, which will push up the contract price and create a premium with the spot. At that time, I thought this strategy was really simple and effective. So I started to observe the funding rates of major exchanges and basically operated against market sentiment. Using this method, I did make a lot of money in the bull market from 2020 to 2021.

At that time, I participated in the FTX trading competition, and I also got access to the FTX real-time operation in the real Bitcoin market. At that time, I went from 400,000 US dollars to more than 6 million US dollars, and the highest reached the 18th place in the contract PNL ranking. If I remember correctly, this is my trading process. I lost a lot of money first, and then I started to think about the nature of this market, and finally found that those who create fluctuations are actually those who harvest liquidity. To understand how these people operate, you must look at the contract data.

However, this strategy began to fail after 2022. The reason for the failure was that the Federal Reserve began to raise interest rates at that time. The concept of funding rate is basically the cost of funds you need to pay when you go long or short a contract, so it is also a concept of interest rate.

If the Fed’s interest rate affects the entire financial market, then it determines how risk assets are priced. The Fed’s interest rate is like a stabilizing force. Before the birth of Bitcoin until 2022, this stabilizing force has been in a very low state.

But after 2022, it experienced an unprecedented sharp rate hike. Since Bitcoin is a relatively young asset, it has never encountered such a rapid rate hike by the Federal Reserve during its growth cycle. The rate hike record in 2022 is the fastest in the past 30 years, and such a fast rate hike also affects the sensitivity of the funding rate in the currency circle. So at that time, I kept trying to go long in the first half of 2022. Although I knew that I might have entered a bear market, I still wanted to try to rebound. It turned out that the trading system that worked before had failed, and coupled with various events such as the Luna explosion at that time, I decided to stop temporarily in March and April 2022, because my tactics were temporarily useless, so I chose to take a break. This is the story from the past. Later, I started to study some new things and found new clues from the order book data. I went to major exchanges to record their order book data, and judged some clues through these data and price trends.

Then I made this order flow system into a data website called CoinKarma. I think I can expand on CoinKarma in detail later, because there is a lot of content in this part. This is the evolution of my trading style. At first, I was like other leeks, but later I found that I should pay attention to the data of the contract, because the market fluctuations are basically created by the main players, who grab liquidity by causing the counterparty to blow up their positions. Later, I found that market makers actually have a price range when they create momentum. If you can find the relative upper or lower limit of this price range, it is easy to find reversal opportunities in volatile markets.

I found this insight while working on the CoinKarma order book. This research was officially commercialized in May, and now there are about 2,000 to 3,000 people using this product. Currently, those who pay to use it think this product is very good. It can help them maintain their faith when the market panics, and remind them not to go crazy when the market is too hot and everyone feels like going to the moon. Our system can really help everyone do this. Okay, Ill stop here and see if there are any problems with FC.

FC

OK, then I would like to ask, if you use one sentence to summarize your current trading style, how would you describe it? Including your views on each cycle, such as how long your trading cycle is, what is the expected return each time, and how you do risk control, can you give a brief introduction?

Benson

OK, no problem. In fact, more than half of my current positions are given to quantitative. Because I started to get in touch with the API interface of the exchange last year, and then started to do quantitative trading of the order book. Now I am a little older, in my thirties, and it is unlikely that I will stay up late every day to watch the market. So half of my current positions are in the quantitative part, mainly for currency-based appreciation. As long as I judge that the current cycle is still on the rise, I will try to hoard and hold coins as much as possible. For the remaining 40% of the positions, I will mainly use stablecoins to play guerrilla games, participate in some on-chain trading opportunities, or do some contract first-order transactions. So my position allocation is roughly 60% for quantitative currency-based appreciation. The other 40% is used for guerrilla games, because my advantage is more in centralized trading, and on-chain trading is basically played with friends, which I am really not very good at. So my operations are basically based on the large market, and I rarely play small currencies with smaller market capitalization. My profit curve is not the kind of super explosive growth. For example, in the last bull market, I made 400,000 yuan into 6 million yuan, which was 15 times in about a year and a half. But the market was very bullish during that period, and I don’t think my returns were particularly explosive, just that they beat the market. So I am not the kind of trader who can make a thousand or a hundred times, but the type who can beat the market. My performance this year is about 2 to 3 times, because my operations are mainly based on the market.

FC

In the last cycle, your starting point was about $400,000, right? This cycle may be even bigger. What is your expected return for this cycle? For example, is it enough to outperform BTC, or do you have a profit stop line?

Benson

Actually, my starting point in this round is quite low, because the money is stuck in FTX, so the starting point may not be as high as everyone thinks. However, I have a goal, which is to recover to the previous high point, and I think thats about it. The starting point is relatively low, but for this number, I can only say that it may take more than 15 to 20 times. To be honest, this years market is not as good as before. Everyone says that from October last year to March this year was the most smooth period, and then it entered the hell mode. The market basically fluctuated sideways, and there were not many explosive and certain opportunities to participate. You can only try to find a better entry point in this wide range of fluctuations, and go long or short. But this kind of market is really not easy for people to make a lot of money. During this period, I tried to hedge and cash out at the high point, and then picked up the spot at the low point to try to reduce my spot holding cost. At present, my big cake cost is about 30,000 to 34,000, because I have been trying to reduce the cost as much as possible, through hedging, sell call, and sell put.

FC

OK, I understand. I understand that you mainly focus on BTC, right?

Benson

right.

FC

OK. Then I want to know about your trading strategy. You just mentioned that you have commercialized your data. Can you tell me specifically what are the two data you look at most often? How do they guide your trading? For example, when do you start buying in this cycle, why do you buy, and how do they guide you?

Benson

Well, actually the indicator I look at most is called LiQ, which is the abbreviation of LIQUIDITY INDICATION. This indicator is a database that I piece together by connecting to the real-time API of exchanges with large spot trading volumes, and then depict the current liquidity status of the market from this database. For example, when market makers are making markets, they will affect their price actions based on the status of the order book.

Lets take the simplest example. Suppose you have $500,000, and you trade a small coin with a market value of about 10 million dollars. Whether its a futures contract or spot, you can try to open a position with a leverage of two or three times, about one or two million dollars, and then try to place it at the buy or sell position. If you place it at the buy position, you will find that the spot price will immediately jump up a little bit. This phenomenon is quite interesting. Mercado makers will adjust their market making direction according to the status of the order book. Do you understand what I mean? In particular, the closer the order book, the more it will affect the price.

Knowing this, you need to know how to learn from the order book. Although the order book data is public, it is not easy to piece together this public information into a complete picture. I used some technical means and stepped on many pitfalls to capture this data, especially the Binance data, which is really difficult to obtain. I collected this data and converted it into an indicator through some algorithms. This indicator can be regarded as a price range, which will be adjusted dynamically. When the price approaches the upper or lower limit of the range, the market is likely to reversal. I made the order book data into an indicator that can issue a warning when the market may reversal.

You can see the relevant charts and information in my latest tweets. I just posted it, specially prepared for todays Twitter Space. I rarely tweet, you can go and have a look. Basically, in the past six months, Bitcoin has been in a wide range of fluctuations, with the bottom at about 50,000 or 60,000 and the top at 70,000. The indicator we most often look at is the Overall LIQUIDITY Status. In the past six months, this indicator has basically accurately reflected the local top and local bottom. Although sometimes it may show a bottom signal, the price will fall again, but overall, it still provides a buying opportunity in a relatively good position, which is better than FOMO at the high point.

You can go and have a look, because when I posted some tweets before, everyone said I was a hindsighter. So later I thought, why not post some predictions in advance. I told the editor that I felt the probability of a drop on August 26 was quite high, so why not post an article to remind everyone. The result was really accurate. On August 26, the price of Bitcoin was around 64,000. We just posted the article, and two days later, that is, yesterday, Bitcoin fell from 64,000, 65,000 to 57,000, which was a correction of more than 10%. I have actually been less active on the community recently because I am busy with my own products and transactions. But that time I especially wanted to let everyone know that this indicator has the effect of predicting the market. Because many people will say that I only spoke out after the fact, so I thought, why not come out in advance to remind everyone when we feel that the winning rate is relatively high, it may rise or fall. In the picture I just posted, you can see that at 57,000 and 58,000, the Overall LIQ indicator showed a state with vertical columns, which is usually a signal of a local bottom.

But this is also a matter of probability. We have done backtesting and found that when the Overall LIQ indicator shows a green column, the probability of Bitcoin rising 5% first and falling 5% first is 7:3% and 2:7% respectively. If we backtest with the data of the past two years, when Overall LIQ is a red column, the probability of rising 5% first is 33%, and the probability of falling 5% first is 67%. This is already statistically significant. Everyone should take into account that Bitcoin has risen a lot in the past one or two years, from more than 20,000 to a maximum of 73,000, and now it is about more than 60,000. So if there is an indicator that has a 5% chance of falling first in this situation, and this winning rate is as high as 2/3, then it is statistically very significant. We did not make random predictions, because in the past three months, many of our users have felt this when they were at the local top and local bottom.

Many times, when the market is saying that Bitcoin is going to go to the moon, and everyone is expecting a soaring Bitcoin Conference, our user base is actually very conservative. Most people are shorting or at least considering cashing out or trying not to leverage long at that time. When everyone is panicking, such as in early August or early July, we will enter the market. Some people may enter the market earlier and may stop losses first, but our entry position is usually after the market has corrected a lot. Because our trading system helps us find an entry position with a high enough safety margin. If you read my latest post on Twitter, you can actually see it just by looking at the picture. There is no need to explain too much. Its probably like that.

FC

OK, yes, I want to thank Sky first, because Sky introduced us, he is our matchmaker, right? Thats why we have todays conversation. I see Sky is here. Back to the question you mentioned just now, I understand that your data indicators are essentially to understand from the perspective of the main force, at this time, the upward profit is greater, or the downward profit is greater, is that right?

Benson

Yes, I can add to this. The factors that affect the trend of the crypto market can be divided into long-term factors and short-term factors. The long-term factors are to see whether these assets, especially assets led by Bitcoin, are gradually recognized by the wider mainstream market, such as its adoption rate, and as a financial asset, whether more and more people think it is a value reserve, etc., which determines its long-term trend. But in the process of long-term trend, there will definiciónnitely be bumps, right? How do these short-term bumps come from?

Basically, we can say that short-term fluctuations mainly come from high-leverage liquidation. The so-called liquidation of high leverage refers to these market makers or the main players in the currency circle, who are actually capable of controlling prices. If they want to maximize their own interests, they will pull up the market when there are many shorts, or smash the market when there are many longs. The most obvious example is the market on March 5, which had been rising until that day when it suddenly fell by 10,000 points. Why did it fall so much? It was because there were so many people who leveraged long at that time. Once they smashed it down, a slight touch would trigger a chain of liquidations.

So from the perspective of the main players, you will find that they are doing one thing: how to get the maximum return at the lowest cost in the process of pulling or smashing the market. For example, if I want to liquidate long positions, I only need to spend 2 million US dollars to smash the market, and I may make 4 or 5 million US dollars in the end, so I will do it. On the contrary, if I want to liquidate short positions, I only need to spend 2 million US dollars to pull the market, and I may make 4 or 5 million US dollars in the contract market, and I may also make 4 or 5 million US dollars in the futures or options market, so I will do it. Our system, that is, this LIQ indicator, what it does is to find out the cost that the main players need to spend when they want to pull or smash the market. If this cost is very huge, the main players may consider whether they really want to do it. Because if they spend 20 million US dollars to smash the market, the final profit is uncertain, and they may only get back 5 million US dollars or 10 million US dollars in the end, then they may not take action. Do you understand what I mean?

Benson

So why do I say that the role of the Overall Liquidity indicator is to see where the markets possible cap is. This upper limit will adjust over time. It is not a fixed line, but we can identify its possible position. In the wide range of fluctuations in the past six months, basically as long as Bitcoin is close to 70,000, the cost of pulling it up will be very high, because the selling pressure at 70,000 is very heavy, and the short positions that can be liquidated are limited. At this time, the main force may choose to give up pulling the market and turn to smashing the market, because this way they can grab more liquidity. So our system is to have this mindset first, and then make this indicator. Because the short-term fluctuations in the market are formed in this way, we try to find the line when a large amount of chips are needed to pull or smash the market. Once this line is found, we can know that the price is likely to reverse at this position. This is our theory and logic behind it. At least in the past six months, this feature is still very useful, and local top and local bottom can be identified.

FC

OK, I understand that there should be two application scenarios, right? The first is, I am thinking about when I will use this indicator. For example, some time ago, one of my LPs asked me, should I buy Bitcoin when it fell from 78,000 to 60,000? I think the current indicators can actually determine whether it is at a relative bottom or a relative top in a volatile market, or in a range market. This is one scenario. The second scenario may be that during the entire volatile range, when there is no unilateral market, it can be used to do a box operation, right? I understand that these are mainly these two scenarios, which can tell you whether this is a relative high or a relative low. Do I understand correctly?

Benson

In fact, if we classify the entire cycle, it can basically be simply divided into one-sided market and oscillating market. Assuming that we roughly divide it into these two categories, the duration of a one-sided market is actually very short. It is usually a fast one-sided market, and then enters a range, and oscillates widely within this range. So we can say that the proportion of one-sided market in the entire market is very small, and most of the time it is in wide oscillation.

In the cryptocurrency world, a unilateral market is not determined by the main players in the cryptocurrency world. It requires a continuous inflow of external funds or a continuous outflow of internal funds to cause a unilateral rise or fall. Such factors usually only last for a short period of time in each cycle, perhaps one to two months, and then enter a range, and then oscillate for a long time in this range until the next direction is decided. Therefore, the products we provide are to help you find a position with a higher safety margin in most market conditions, especially in volatile markets, to participate in the market.

As for how to identify a one-sided market, we also have a method. We observe the CVD of the exchange, which is Cumulative Trading Volume. CVD is judged by observing the strength of the market order. If the order book is very thick, for example, the sell orders are very thick, you need a lot of market orders to knock out these sell orders. We make the power of market buy an indicator. So at the end of July and the beginning of June this year, we observed a phenomenon that the CVD strength was not high at that time, the power of market order was not strong, and the selling pressure from above was very heavy. In this case, the probability of falling will be higher, which means that we are still in a volatile market, not about to usher in a one-sided market. Therefore, we provide a trading system that is very useful in a volatile market, but we also have other indicators to help you judge whether it is a volatile market or a one-sided market. This is what we are doing.

FC

Right, so I wonder if you can talk about it? For example, the 70,000 you mentioned just now, I think the selling pressure is very high, right? From the perspective of a long-term trader, how can I judge which indicator can be used to determine whether 70,000 may be broken this time? Of course, from an external perspective, there may be some changes in macro factors, such as interest rate hikes, interest rate cuts or other positive factors. Then in your indicators, can you see that this time it may really break through the previous high and develop a new trend? This is also what everyone is more concerned about, because everyone has been fluctuating, right? Some time ago, it was almost 76,000 and then fell again, right? When will it end? How do you see this?

Benson

Yes, let me put it this way. Basically, if you want to break through a very strong resistance, it is impossible to pull it up only by internal funds. So we will look at the status of external funds. Taking this year as an example, the most obvious unilateral market was from the end of January to mid-March, which lasted for more than a month. During that time, we observed major exchanges with large spot trading volumes, such as Coinbase, Binance and Bitfinex. The market buying strength of these dominant exchanges was very strong. Including the inflow of BTC ETF, the net inflow of funds is also very exaggerated. Only in this case, external funds continue to pour in and impact the market, can the upper selling pressure be broken and a unilateral market be formed. So in short, if you want to judge whether this time will break through or continue to fluctuate, basically look at the inflow of BTC and the CVD of the exchanges I just mentioned.

In our trading system, if the current Overall LIQ is very red, it means that the selling pressure from above is very heavy, and the main force or market maker encounters great resistance when pulling it up, but there is not enough external funds to push it up, such as ETF inflow is not strong, and the market order strength of CVD is not strong. We will be more confident that this position may have a higher probability of falling back, and will not break through directly. This is the indicator we pay attention to when looking at the market. Of course, everyone may look at different indicators, and the way to judge unilateral or oscillating is also different, but this is our way.

FC

OK, I understand. I want to know the next question, about some altcoins. For example, I also saw that you have some opinions about

Sol. How about we talk about it first. What do you think is the logic behind Sols breakthrough of the previous high? Please share your opinion.

Benson

Well, regarding Sol, I think we can start with the fundamentals. We can see that the public chains with relatively large market capitalization and more people playing in the crypto market basically have one characteristic, that is, they are EVM compatible, right? That is, as long as you can write Solidity, you can quickly deploy a DApp on these EVM compatible chains. In contrast, Solana is different, it is written in Rust. If you use a simpler analogy to explain, other chains may only need to write Solidity, and you can quickly transplant a DApp in.

So, if you want to really build an ecosystem on Solana, there is actually a little flaw. That is, if I cheat, I can throw this thing up quickly. But on Solana, as a smart contract engineer, you may have to learn a language from scratch and then develop applications on it. So in terms of the purity of the application, or the level of the developers, I think Solana is obviously higher than other chains. This is one of the reasons why I am optimistic about Solana. They are both TTVL, which may be two billion or three billion. They may also have dex, swap, and exchange for directivederivatives. So which ones can be copied directly, and which ones may need to be developed slowly from scratch. Especially in the last cycle, in addition to the relationship with FTX, this is one of the reasons why I am optimistic about Solana.

The second reason is that this logic still exists today. Most chains still regard EVM compatibility as an important feature. From a cyclical perspective, if a coin can become a long-term asset and there is a reason for people to be willing to hold it for a long time, it must have one condition, that is, the ability to be reborn from the ashes and show its anti-fragility. The so-called anti-fragility is that it has the ability to return to the front line under extremely unfavorable circumstances. I think among all the coins, only a few have this ability. Bitcoin is certainly one of them. After more than ten years, it has been looked down upon by mainstream media many times. Ethereum is also one of them, because it almost collapsed after the ICO, but it finally climbed back. Then there is BNB, which has experienced the 94 incident, CZs arrest and other events, and is still alive and well, and the trend is not particularly bad.

Then there is Solana. Solana experienced the FTX explosion and the turmoil that FTXs creditor committee intended to sell coins. When Solana was at its lowest point, it was not the people inside Solana who supported it, but Vitalik, the big boss of Ethereum. He said that if ETH won because of Solanas failure, he would feel very sorry. This was said by Vitalik himself. At that time, makerDAO also considered switching to other chains, and Solana was one of the options they considered. So when Solana was at its lowest point, it was the external ecosystem that supported this chain and gave everyone some confidence.

So I think from the perspective of technology, community value, development difficulty, and the ability to reborn from the ashes, Solana is a relatively good investment target. Because investment targets are compared. If we look at the trend of Solana against ETH or Solana against BTC, it is basically in a state of rebirth from the ashes. Most altcoins are falling in exchange rate against BTC. Many coins were booming in the last cycle, but they cant keep up with the market this time, but Solana can keep up. So from the perspective of Price Action, from the perspective of fundamentals, and from the ability to reborn from the ashes periodically, I think Solana is a target that has the potential to break through the previous high of the previous cycle, at least for me.

FC

I see. Then can you describe, for example, how do you complete the entire process of a transaction every day or within a cycle? For example, what data do you look at every day, and what actions do you take under what data indicators? Can you describe this process? Because you have your own product now, right? How is the entire transaction process completed?

Benson

We can talk about it briefly. OK, actually, every morning, I will first take a look at the current market liquidity overview. We have a Telegram channel that publishes the liquidity of mainstream currencies and the overall market every hour. I will take a look first. Basically, I will only intervene in the market when reversals are more likely to occur. There are many ways to intervene in the market. If the certainty is relatively high, you may leverage long or leverage short. If the certainty is not that high, you may choose to hedge the spot, or buy some puts, or do some dual-currency financial management operations when there is spot.

So the first thing is to look at the liquidity profile of the market to determine whether I need to sell. Then because I still have some ocoinaltcoin holdings, I will see if it meets my expectations and whether the reasons for me to continue holding still exist. I might take a look. If it has already met my expectations, for example, there is a coin in this cycle, and its market value was originally around 200, and I expect it to be in the top 30, then I might choose to sell it at this stage. Maybe even if it has a chance to enter the top ten again later, but I think the risk is greater and the probability is lower, then I might choose to sell it.

Basically, it is like this: first look at liquidity to determine whether there is an opportunity to intervene, and then decide whether to operate net long net short or hedge spot leverage long, leverage short based on the certainty of the opportunity. The next step is the existing holdings of OcoinAltcoin. If it has not yet reached expectations and the reason for holding still exists, then continue to hold. If it has reached expectations or the reason for holding no longer exists, then you may choose to sell it, roughly like this.

FC

I see. The last time you sold a token, what changes did you think it had? Can you tell me why you bought it and why you sold it? I think this is quite interesting. Or what variables do you pay attention to when it comes to a token of an altcoin?

Benson

Well, I can give you two examples. One is FTT. I was an early holder of FTT at that time, and the average cost of opening a position was less than three yuan. Later, when Coinbase was listed, the pre-market trading market value reached more than 100 billion US dollars. I calculated it and felt that this market value was a bit inflated, because the listing of Coinbase at that time led to a surge in the entire platform currency. At that time, FTT soared from less than 10 yuan at the beginning of the year to 60 yuan, and BNB soared from 30 or 40 yuan to 500 or 600 yuan. I sold about 30 to 40 percent of FTT at 60 yuan, because I thought there would definitely be an opportunity to buy it back at a lower price later. The market was already too hot at that time. Of course, FTX had problems later, but thats another story. This is an example of a long-term spot I once sold.

Another example is Solana. I bought it at a price of more than three yuan, and then it had a relatively large correction, correcting to more than one yuan. At the time when I bought it, the circulating market value was about 100, and my expectation was that if it could enter the top 30 in this cycle, I would think it would be great. So I sold all my Solana before 60 yuan, although it later rose to 260 yuan, which I sold at a loss. But even if I sold it at a loss, I don’t think anyone could have predicted that it would enter the top ten. I think the probability of entering the top ten is very low, so I didn’t expect it to pull so hard later. These two examples respectively illustrate my expectations for it and the final decision to sell.

FC

OK, I understand. Do you have anything to add to the data?

Benson

Not at this time.

FC

OK, lets talk about risk control and the stop doing list. What operations do you now definitely not do? Some past experiences make you pay special attention now, such as when a certain situation occurs, you will choose to stop loss or take profit. This is the first question. The second question is, what trading habits have caused you to suffer big losses in the past, and you will definitely not do them now? Can you share with everyone?

Benson

OK, let me first talk about the big losses I have suffered in trading. Because I actually have quite a lot of experience in this area. In the past, I often felt that as long as the track was okay and there were no other better investment targets, I would keep holding on. From the perspective of PE ratio, some tracks may seem quite reasonable. But later I found that the most sexy part of the currency circle is the hazy beauty. What is hazy beauty? It means that the project has not been fully implemented. When it has not been implemented, the story can be told in a big way, and the PE ratio has a lot of room for imagination. For example, we can say that a certain project is a decentralized computing network in the world. Then, from the perspective of market value, how much does it have to rise to match this positioning? This point is difficult to estimate, right?

But later, some of the targets I invested in were real tool-type projects, and their PE ratios were easy to calculate, and they made sense compared to the PE of stocks. For example, the PE of some stocks may be five or ten times, depending on the industry. So at that time, I also thought that if a certain coin had a PE of 5 to 10 times, it was worth buying. My initial thinking was to buy tokens in the same way as buying stocks, because my main holdings at the time were tokens from exchanges, and the PE ratios of these tokens were relatively easy to calculate.

But later I found that this kind of thinking is not applicable in the cryptocurrency world, because the pace of change in the cryptocurrency world is very fast. Some projects may have a reasonable PE ratio for a period of time, but when the hot spots are gone, it may completely collapse. For example, OpenSea. At that time, OpenSeas valuation peaked at more than 10 billion US dollars. The logic behind this valuation was that OpenSeas trading volume was very high at the time, and it could make a lot of money just by collecting transaction fees. I forgot how many PEs they used to calculate the valuation at the time, but the valuation of tens of billions of dollars at the time seemed to be an investment that made sense. However, we all know that the NFT market cooled down later, right? So the PE ratio that was reasonable at the time may have become hundreds of times now, which is unreasonable.

With these experiences, I understand that in the cryptocurrency world, projects with vague beauty are actually better targets. It is best to choose projects that have room for imagination but have not yet been fully implemented, rather than pure tool-type projects. I think non-tool-type tokens have more room for imagination and are less likely to have the problems I just mentioned.

So, if I were to invest in a coin now, if it is still a tool-type, I would see if its demand is the last long demand, which will not fluctuate greatly with the change of the cycle. In contrast, a project that may have had a 100-fold return may now only have a 1% return, which is not worth investing in. I will focus more on projects with long-term demand. This is one of the biggest losses I have suffered in trading. When I invested in some tracks, I treated them as stocks and invested when I thought the PE ratio was reasonable. The result was really terrible in the end. Maybe when I finally exited, only 5% of the price at that time was left. For example, 100 yuan went in, and I only got 5 yuan back in the end, which basically means I lost everything.

FC

I understand. What you mean is that when a project has not yet landed, its sentiment has a lot of room for imagination. But once it is really landed, when you use valuation to measure it, its room for decline may actually be greater, right? So what is your trading method now? Do you leave when you achieve the expected return, or do you think it is better to sell at what point?

Benson

I think different targets will have different approaches. I think some targets may become the next hot spot of the market. As long as I subjectively believe that the future market will not cool down completely and will not enter the beginning of a bear market, I may hold on until this topic is detonated. For example, I think that in this round of cycles, the wave of Meme coins cannot be said to be completely over, but it is difficult to set off another wave of enthusiasm like before. Next, some coins that really have good fundamentals and have been underestimated for a long time may be picked out to regain attention. For example, Aave was recently picked out for discussion because its trend is okay, and in the DeFi project, the founder did not spend money recklessly and has been developing it seriously. I think if there are some hot spots in the next round of cycles, they will not all be concentrated on Meme coins like in the first half. In this case, I will not pay too much attention to the target price, but pay more attention to whether the market keeps up with my views. Of course, it is possible that my views are wrong and the market may not pay attention to this target.

But if the reason I bought it in the first place was because I felt that the market had not paid attention to this track, and I thought that this track might rise, then I would hold it until the market paid attention to it, or I felt that the bull market was over and the market had cooled down completely, then I would also choose to exit.

FC

claro.

Benson

For some tokens, the price is really important, because they may have a long history, and I can use some technical analysis or fundamental analysis to roughly determine where their price may go. For tokens with a relatively large market value, I will make this judgment.

FC

I see. I actually had another question just now, about the relationship between data and cycles. You mentioned cycles, so how do you determine which stage of the cycle we are currently in? For example, the current cycle is already two-thirds of the way through, right? Are there any data indicators to support this?

Benson

I think it is really hard to say about the progress. I don’t have the ability to judge whether the current progress is one-third, two-thirds, or has been completed. But I feel that from the previous cycles, there will be a cyclical high point, and the high point usually has a characteristic, that is, many people outside begin to pay attention to this field. For example, the highest point of NFT was actually in the first quarter of 2023. At that time, everything really had to be linked to NFT, and all web2 and web3 projects were engaged in NFT. But at least in this cycle, I haven’t seen a similar phenomenon.

Recently, many people will pay attention to an indicator, which is the ranking of Coinbase APP, right? In the previous bull market, Coinbase APPs ranking would basically be in the top three for a long time. For example, in the last round of 64,000 and 69,000, it was ranked in the top three in North American financial APPs for a long time. But this time, the top ranking was only fourth, and it only lasted for one day. If we look at the number of Bitcoin page views on Wikipedia, there is no sign of large-scale entry of leeks. So, if 73,000 is really a cyclical top, then the characteristics of this top are really different from the previous ones. At least from my personal point of view, I think there are still many variables whether the next Q4 can set a new high, or even whether it can set a new high in Q1 next year. One of the variables is the political direction of the United States. Originally, everyone thought that Trump had a high chance of being elected, but later Biden might withdraw from the election and Harris Kamala Harris would take over, so this variable is relatively large. So to be honest, it is really difficult to judge now, but I personally tend to be bullish. I think the chances of this cycle continuing to go up are still relatively high, at least Bitcoin has a chance to hit a new high. However, this is just my personal bullish bias. If we talk about the recent verification, I think at least we have to prove that 65 K is not a lower high, not a lower high at the daily level. If we want to find an entry point on the right side later, at least the closing price at the daily level must be above 65 K or 66 K. And that line is also the 200 MA, which is still a very important line in the current situation. So subjectively, I think there is a chance to break the previous high later. But in actual operation, when taking a position, I will pay special attention to whether the 65 K position can be broken. If it breaks through, the daily level will not form a lower high, but it may be a reversal signal, something like that.

FC

I think the last part of our session is something I am also quite curious about. You used the funding rate to judge the market direction at the beginning, and you also had good returns at that time. Later you found that the market had changed, right? So how do you continue to perceive the changes in the market so that your trading strategy will not fail? I want to know how you do it. You have been learning something new. Do you have any recommended traders, or what are some sources of information you pay attention to?

Benson

This is an interesting question. I think that rather than focusing on what type of traders or what data to observe, it is better to have a basic understanding of the market. For example, I also drew lines, looked at patterns, analyzed moving averages, and even used Fibonacci retracements at the beginning. But then I realized that 90% of the people in the market use technical analysis to trade. So if you also use technical analysis to trade, there is only one way to win in the contract market, that is, although you use the same tools, your views must be completely different from others. For example, if you are also looking at the head and shoulders top pattern, you have to think about it. So many people see the head and shoulders top, what might they do? And then what should you do? You have to take the reflexivity of trading into account.

I found that if I also use technical analysis to trade, I must be able to do this, but perhaps I dont have enough confidence to do well in this regard. So at that time I began to think, since most people in the market trade in this way, can I use another set of methods to look at the market? Contracts are a zero-sum market. To make money in this market, you either look at the same thing but have different ideas, or look at completely different things to win in the contract market.

This way of thinking is universal in the market. For example, the funding rate was very useful in the past. I also used to look at the long-short ratio and the open interest. Later, I didnt mention them often. Why? Because once people start to pay attention, trading reflexivity will occur. Things that were useful before will suddenly become useless, or sometimes useful and sometimes useless. When this happens, you have to know that when this happens frequently, the system may fail, and you may have to find a new deterministic alpha.

The Liquidity indicator that I often use now was actually free in my group at first. I made it into a channel, which later had over 500 subscribers and was provided for free for almost two years. Later, someone suggested that this tool should not be used for free because anyone can join. I decided to shut down the group and protect this Alpha by keeping it with limited access rights as much as possible so that not everyone can use it or watch it.

So, when you look at this market, you must first have this mindset that an Alpha must be continuously effective and not too many people know about it. If you have an Alpha and find that it is useful in many places, and then suddenly it is sometimes useful and sometimes not useful, this may mean that it has been known by many people.

In order to protect alpha, CoinKarma will also limit the number of users. For example, we are going to remove the free version recently because we only provide LIQ indicators for BTC and ETH in the free version, which is actually very useful. Some paying members are worried that it will affect alpha, so we decided to remove it. If the number of members increases in the future, we will control the quantity by price and try to keep the number of users below an order of magnitude.

Another point, I often say, in this market, leverage is generally very high. For example, on general exchanges such as Binance, you can open 50 to 100 times leverage on many currencies. This high leverage only appears in the foreign exchange market, and in the foreign exchange market, the annual amplitude may be only 10%, so they use such a high leverage to magnify the yield. But in the cryptocurrency circle, the amplitude may exceed 20% in a week. If you still open such a high leverage, who else will the main force cut if not you?

So the second way of thinking is, you need to know the long-term market, short-term fluctuations, why sometimes the line is drawn very quickly? In fact, it is to kill the quantitative strategies of high-frequency trading and retail investors with high leverage. When market makers harvest chips, they sometimes create very strong trends. So you must first have this basic understanding, and then develop your trading strategy, in order to win in the market. Otherwise, if you don’t know where the liquidation line of retail investors with high leverage is, your trading system will often be incomplete.

I think it is better to have a basic understanding of the operation of this market than to learn something. You need to know where these fluctuations come from and who is creating these fluctuations? How much does it cost them to create fluctuations, and what is their potential profit. These are all things that the main players will calculate before creating fluctuations. I have to spend how much money to sell the chips I throw out, and I have to make sure I can get these chips back, so that I can always maintain control over this target.

With this way of thinking and model, you will have a more correct understanding of the market. I think this is something that few people in the market mention, but it is very important if you want to maintain an advantage in the contract market for a long time.

FC

OK, thanks. My last question is, do you have any traders, either in our industry or outside, who have had a big influence on you? If someone wants to become a trader like you, what knowledge system do you think they should learn? What should be the process of forming this knowledge path? This is the last question.

Benson

How to form a knowledge path?

FC

Yes, first of all, can you tell me if there is any trader who has had a greater influence on you?

Benson

Actually, it seems that there is no such thing. If you really ask me, I think there is no such thing. I should say that I don’t have an idol in the field of trading. I don’t have a specific “role model” type of idol. But I will refer to the opinions of people from different schools of thought.

FC

Okay, sure.

FC

I think the time is about up, we talked for about 1 hour and 5 minutes. Thank you, Benson. Do you have anything else to add? You can take a look at his pinned tweet. In fact, that picture is what he just mentioned. It will be better to listen to our recording with that picture. Do you have anything else to add?

Benson

Not at this time.

FC

OK, from what I heard, the core is the point you mentioned at the beginning. When everyone sees an indicator, it may become invalid. In essence, you think about how to build your own trading structure from a unique perspective, or a non-consensus approach, so as to outperform others. Because in essence, contract trading is a game of how to win over most people, right? The way you find is to win over others by being consistent with the interests of the main force, and then form your own trading system. I dont know if this summary can represent your approach.

Benson

Okay, I think that sums it up very well.

FC

OK, we will organize todays content into a text version and send it to you, and then add some pictures to help everyone better understand what your trading system is like.

I think every trader has his or her own unique style and ideas. You can learn in a way that suits you, or combine the advantages of others to enrich yourself. This is also the original intention of our dialogue and communication, so that everyone has different spaces. I think it is very difficult to completely copy someone elses trading strategy. The most important thing is that everyones personality and growth path are different. So I hope more people can see different trading styles. Thank you again, Benson. Although we have known each other for a short time, thank you for sharing without reservation. Lets stop here today, okay?

Benson

OK, thanks FC for your time. Thats all for today. Bye.

FC

Okay, bye everyone.

Benson

Bye-Bye.

This article is sourced from the internet: Dialogue with trader Benson: How do those who use data-driven trading make money?

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