對話畫家：多頭市場何時回歸？ 3個維度解釋本次多頭有何不同

This episode’s guest: Painter, quantitative trader and secondary analyst, Twitter @CryptoPainter_X

*所有文字僅供分享，不構成任何投資建議。

1. About Painter

The core of trading is people. A persons experience, background, personality, and financial attributes determine the development of his or her trading strategy.

What is Painters trading strategy?

1) Fund size and configuration:

• Position the crypto market as an ultra-risk market, with an allocation of no more than 30% of total assets

• The funds invested in the crypto market are mainly allocated to medium and low frequency quantitative investment (trend strategy), ensuring that every bull market will not be missed and every bear market will not be held back.

2) Expected return bearable drawdown:

• The expected return comes from quantitative data backtesting. Ideally, without leverage, the annualized return can generally be around 50%. If double leverage is used and long-term capital compounding is taken into account, the rate of return will be higher.

• The entry and exit of any transaction always takes stop loss as the core. No matter how low the risk of the trading strategy is, stop loss will be set. Painters suggestion is to set a loss limit for each transaction, such as 2%-5% of the principal, to control the retracement of a single transaction, so as to maintain emotional stability. Many emotional transactions start from a single transaction with a large stop loss. Because of the anchoring effect of people, they will always want to earn back the amount of the previous stop loss, thus forgetting the risk and gradually expanding the leverage until it reaches the top, resulting in over-trading and gambling-style transactions.

3) Transaction logic:

• In the cryptocurrency market, trends are always the source of all profits.

• In the cryptocurrency market, use time as leverage rather than money.

• Surviving for a long time and waiting for the liquidity dividend cycle is the most effective strategy in the crypto market.

• Why did Painter develop such a trading strategy?

4) About Quantification

• Painter entered the market in 2018 and engaged in subjective trading in the early days, which lasted for about two years with basically no returns. After the liquidity crisis on March 12, 2020, he made up his mind to start quantitative trading. In the process, he recognized some logical laws of market operation, and his trading began to get on the right track, and he obtained very considerable returns in the bull market in 2021.

• At present, the main funds are allocated to quantitative investment, and medium- and low-frequency quantitative strategies tend to be trend-oriented. Painter believes that medium- and low-frequency quantitative investment always starts buying when prices have risen a lot, and starts selling when prices have fallen a lot. This sounds anti-human, but in fact it is very in line with market trends. Historical returns have proved that as long as there is a trend and as long as there is a large-scale fluctuation, trend strategies can be profitable, but you just need to be friends with time.

• Painter suggests that if you have a feasible quantitative strategy, try to let robots do the trading instead of manual operations. Once you do it manually, the strategy will not be firmly executed due to the influence of human nature and emotions. The quantitative strategy is a long-term data fitting, that is, if the market maintains the same rules and logic for a long time, and the strategy is supported by past data, then it will achieve positive expectations of profit under long-term and multiple trading executions. Painter has also written a series of articles to teach you how to get started with quantitative trading. Interested friends are welcome to check it out:

  0 Code Basics How to start quantitative trading? https://x.com/CryptoPainter_X/status/1773978839783469294…

  What is the basic process framework of low-frequency quantitative trading? https://x.com/CryptoPainter_X/status/1774838918112022834…

  How to use my strategy AI to write quantitative strategies for you? https://x.com/CryptoPainter_X/status/1775499266854904246…

  Avoid pitfalls and optimize strategies https://x.com/CryptoPainter_X/status/1777281989353328995…

  How to connect to an exchange (Part 1) https://x.com/CryptoPainter_X/status/1779813919244325094…

5) About risk control

• Painter believes that if stocks in traditional markets are defined as risky assets, then all cryptocurrencies are ultra-risky assets. In such a market, if you want to achieve long-term stable profits, learning how to control risks is the first step.

• Whether it is quantitative or subjective trading, the most important thing before starting a transaction is to consider how much money you plan to lose, then formulate a trading plan based on this and strictly execute it. If you have $10,000 and your planned loss is $500, when there is no leverage, the stop loss range is 5%. If you use 5 times leverage, the stop loss range is only 1%, and the stop loss range will limit your entry point.

• Who is Painters trading strategy suitable for?

In my opinion, Painters trading strategy is suitable for people who want to trade seriously. Painter and I have an observation and feeling that many people in this market trade with a playful mentality. In many cases, trading is very affected by subjective emotions, and they do not learn lessons from trading. They may still be unsystematic and stagnant after trading for many years. Through the methods and paths shared by Painter, you can develop good trading habits, which is the starting point of the road to becoming a real trader.

2. Painter’s Trading Story

Knowledge verified by practice is true knowledge. Reviewing and looking back on specific transactions can help you understand and learn the application of trading strategies more intuitively.

Why was there the “805” crash?

A big reason for this decline is the carry trade of Japanese yen. The specific logic is:

1) The bull market after the approval of Bitcoin ETF was driven by the carry trade of Japanese yen.

In the year and a half since 2023, the main liquidity in the risk asset market around the world, including a large amount of capital inflows in Bitcoin ETFs, a considerable part of which actually comes from the carry trade of the Japanese yen. Borrowing from the Bank of Japan as collateral, borrowing Japanese yen, then exchanging Japanese yen for US dollars, and then buying Bitcoin spot through ETFs, while shorting CME futures on CME. In this round of CME futures market, even up to now, each months futures contracts will generate a high level of premium, which will be gradually smoothed out as the contract expires. This process can provide a risk-free annualized return of 14% for large funds doing term arbitrage in the Bitcoin market, which is far higher than the US Treasury bonds and US deposit rates. The large net inflow of ETFs will drive the sentiment of funds on the market, and the stablecoins on the chain will begin to be issued in large quantities, driving the bull market. However, the launch of this market is not due to the increase in global liquidity, but the mobilization of funds on the original site.

2) The Bank of Japan’s interest rate hike combined with the recession expectations from US economic data has led to increased repayment pressure on Carry Trade funds, resulting in a sell-off.

Data warned that the US economy was in recession, and the market expected the Federal Reserve to cut interest rates urgently. Once the rate cut occurred, the funds earned from the interest rate spread of Japanese yen carry trade would flow back. When the US dollars were converted into Japanese yen and then flowed back to Japan, the yen exchange rate would appreciate. In the case of another yen interest rate hike, the leveraged funds that had previously borrowed money from the Bank of Japan would suffer huge losses when repaying the yen. As a result, the market formed a situation where, based on the consideration that the yen exchange rate might rise and that liquidity might face a crisis at the cost level, it chose to close a large number of positions and sell off to repay the borrowed yen. This kind of panic contributed to this wave of sharp declines.

3) From an additional perspective, from the perspective of the market and supply and demand, this drop should also happen.

The market has been oscillating for more than half a year at this position, and there has not been a real plunge in volume. The long-term range game has led to the market not seeing large-scale liquidations for a long time. In this case, the probability of triggering a high volatility market will become greater and greater. Painter once shared an indicator that when Bitcoin has not seen a drop of more than 30% in the daily closing price for a certain number of days, the current price is still at a relatively high level. Until this big drop, there has not been a drop of this level in more than two years, so it is inevitable that the market will carry out such a round of wash-out, or liquidation.

What stage of the cycle are we in now? What should we do?

1) Judgment on the trend

• Painter believes that we are now in the wash-out stage, or the early stage, of the liquidity bull market (refer to 2017 and 2021). This process will wash away a large number of potential chips that may be sold in the future. This process must be cruel, boring and painful. Just like in the last cycle, many people made money in 2021 instead of 2019. In this round, many people will not make money in 2024. They will have to wait until 2025 to make real money.

• The current market situation is more due to the interest rate spread of yen arbitrage, which has caused this part of liquidity exposure to flow out of the Bank of Japan and into risky assets in countries around the world, but this is different from a real liquidity bull market. If you want to get out of the same pattern (refer to 2017 and 2021, you still need about $25 billion in liquidity injection. The current process of price fluctuations at high levels is waiting for global liquidity to recover and for a wave of large-scale water release to come.

• Interest rate cuts often do not represent the beginning of a bull market, but rather the preparations before a bull market begins. Painter concluded from data that a bull market has only just begun when the Fed’s interest rate drops below 1% or 1.5%. Based on the current Fed’s interest rate cut schedule, it is speculated that the next round of a bull market should arrive in the middle of 2025, or around the third quarter. At the same time, according to the current growth of the stablecoin market value, it will take 3-4 quarters to fill the $25 billion liquidity gap, which is about the third quarter of next year.

2) Suggestions on operation

• If you agree that we are now in a period of bull market volatility, it is recommended that you buy 10% of your position every time the price reaches a new low.

• Regarding the choice of currency, although many people who hold altcoins are very sad this round, analogy with the U.S. stock market, when liquidity is abundant, the Russell 2000 and small-cap stocks will outperform the broader market. Similarly, when liquidity is sufficient, altcoins and small-cap coins will definitely outperform Bitcoin. So if you agree that 2025 will usher in a liquidity bull market, it is recommended to build a position when altcoins fall to near their previous lows. No specific projects are recommended.

When will a trade expire? What is the Stop Doing List?

1) Effectiveness of trading strategies: Any strategy has profit periods and drawdown periods. For Painter’s trend strategy, the current expansion range oscillation is very difficult to do. The oscillation in the range of 50,000-70,000 has caused the trend strategy to retrace the profits of the entire bull market, which is very painful. As for the oscillation strategy, the performance is better at present.

2) About Stop Doing List

Never make a big mistake, because a big retracement will not only affect the overall capital level, but also damage the mentality. When you suffer losses several times in a row, a dangerous mindset will emerge: you want to make back all the previous losses in one go. Driven by the hope of recovering the capital in one wave, you will use high leverage and overweight positions, exacerbating the vicious cycle.

A truly long-term profitable trader never makes money from one transaction, but from the accumulation of countless profitable transactions. A small loss today, a small profit tomorrow, but the profit is always greater than the loss, and the winning rate always meets the expected profit level of the profit-loss ratio. After one or two years, it will be successful with the compound interest of the funds.

3. Painter’s “Must Read”

The growth of an excellent trader is inseparable from continuous external input, learning from other excellent people, and reading content that is meaningful to learn from. We can also continue to accumulate and grow through other people’s Must Read lists.

Favorite Trader

1) YouTube blogger Luo Sheng, recommended for everyone who wants to create their own trading system

https://www.youtube.com/@luoshengcriss

2) Fat House

The legendary trader in the bull market cycle from 2019 to 2021, who made more than 30 million US dollars with 200,000 US dollars, was active on Weibo at the time, but has now disappeared. The fat mans trading logic is very simple. He has a trading system, and there are no indicators. He will go in when the price breaks through the new high, and stop loss when it falls back and breaks through falsely. Such a system is implemented for a long time and resolutely. Although the victory rate is only a few percent, the rate of return is far ahead.

I also found some summaries of the trading methods of fat people on the Internet, which are posted below for reference only. If you know the original, please @.

• Adhere to the right side of the transaction, that is, follow the trend direction, do not buy the bottom or touch the top, and do not go against the trend. It is believed that the trend reversal is not completed in one day, and it takes a period of reversal, which is the so-called reversal pattern.

• The most commonly used technical indicator is chart patterns. Observe the common and unique chart patterns in the market, and go long or short based on the breakthrough direction of the chart patterns.

• He is good at going long after breaking through key resistance levels. If the trend is right, he will let the profit run. If the price is corrected, he will stop loss and exit. He once said, To ensure that when a unilateral trend comes, you must be on the trend train, and strike decisively at the moment when the markets least resistance route appears, and strike a fatal blow. After entering the market, if the trend does not reverse, then hold on.

• Always long on the coin platform, playing a clear hand with the air force, he once said: Speculation is not about the harder you work, the more successful it is, because of luck, the market rewards you with food. But if you havent practiced for the past five years, you wont be able to catch the luckiest market. Speculation is very similar to studying. You study hard for ten years just to soar to the sky and make a stunning debut in the final exam.

Recommended books

1) Denniss Turtle Trading Method

Understanding trade execution and trading rules is very important for anyone who wants to take trading seriously.

2) Wyckoff Trading Method

The knowledge of accumulation and distribution ranges is very useful for altcoins and coins controlled by major players.

3) Advanced Trend Technical Analysis

Help getting started with technical analysis

談話記錄

FC

Our content is divided into several parts. The first is your experience and background, the second is your trading strategy, and the third is about your growth. It is fate that I invited you. I sent a tweet the other day to see who to invite. In this market crash, an enthusiastic netizen @ed you, and I read your content, which is quite interesting. The first step is to talk about your current trading strategy, scale, expectations, risks, cycles, etc.

Painter

Okay. Ill go through them one by one. I looked at Space and found that there are many friends I know. I used to talk about my background often, so Ill briefly talk about it. I entered this market in 2018. Like most leeks, I did subjective trading in the early days, which was basically a personal gambling transaction. It lasted for about one or two years, and I failed repeatedly and basically didnt make much money. Later, I started to do quantitative trading and began to learn systematically. This process was also very painful. I would question myself many times whether I was not suitable for trading. I believe that all people who have experienced major setbacks or major failures in trading will have this idea, so my advice is to never doubt yourself. After the liquidity crisis on March 12, 2020, I made up my mind to start doing quantitative trading. In the process of quantitative trading, I began to slowly understand, or lose some of the laws of professional traders or market principles. Of course, I am not talking about the laws of making money, but the logical laws of the operation of the market itself. Relying on quantification, we got back on track since March 2020, and then in the bull market of 2021, we reaped a very rich return. Until now, we have basically been in a very standard and calm state, and we have been able to survive in the market for a long time. This is my background.

Usually, I mainly do technical analysis of Bitcoin and some quantitative trading online. Occasionally, I will share some macro data on the chain. I also love to study these data because I have always liked these related things. One of my personal mottos is to use time as leverage. A long time ago, my motto was to make friends with time, but later I found that many friends in the currency circle actually hate this sentence, because everyone hopes to get rich overnight and make money quickly. So many people hate the motto of making friends with time or hate this sentence. In fact, I can understand it. Then I found that if you have been trading for a long time and have been investing in the market for a long time, you will find that the most powerful leverage in this market is time, not the multiple of your trading leverage, how big the order is, these are not the most important, time is your biggest leverage in this market, so I also hope that everyone can understand this sentence. At the beginning, you will definitely question it, but you will slowly understand it, and finally you will become it. This is my background.

Next, let me talk about my trading strategy that FC mentioned just now. In this space, because I feel that we are doing a one-on-one interview, I dont need to consider other aspects. I will just talk about my own views. The first point is the assets in the cryptocurrency circle. I would like to ask everyone, what kind of assets do you think the assets in the cryptocurrency circle are, including Bitcoin, altcoins, and MEME? Many people think that there are two types of assets in the cryptocurrency circle. For example, Bitcoin is a value-preserving and stable asset, while other coins are gambling and risky assets. But in fact, in my personal understanding, all cryptocurrencies are super-risk assets. Like stocks, some stocks in the US stock market, and stocks that are directly used for trading in other markets, they are actually risky assets. In my opinion, all assets in the cryptocurrency circle are super-risk assets that exceed stocks and traditional assets. Then the definition behind super-risk assets actually represents that in addition to its super-risk attributes, cryptocurrencies themselves also have super-return attributes. So there is a very simple logic here, that is, if you are in a market for ultra-risky assets and you want to achieve long-term stable profits, the first step is to control risks.

To put it bluntly, in the cryptocurrency market, as long as you can survive, that is, as long as you control your own risks, then the unexpected returns in this market will come back sooner or later. So my investment logic is very simple, that is, when I see that the risk in this market is extremely low, I will bravely enter, and after entering, I must control the risk. Risks must always be controlled, but dont have expectations for potential future returns. Dont say that I can withdraw cash at a certain position, I can cash out, and when I can ship. Try not to have such ideas. Simply let go of your imagination a little. I have been doing it since 2018. To be honest, I have experienced this feeling again and again. Many friends can do this. They dont have any expectations for returns, that is, they will definitely fly to the sky in the future, but in the process of thinking about flying to the sky in the future, they will bring themselves a kind of cognitive symmetry, and at the same time, they will think that the risk is not that big. I still recommend that everyone understand that in any market, any transaction, any investment, the risk and return are always proportional. So if you think that the ultimate expected return and future price increase of an asset, a project, or a currency are unimaginable and immeasurable, then you must remember that assets that can bring such huge returns must correspond to the same proportion of potential risks. I have been in this market for so long, and the core reason that has allowed me to survive for a long time is that I have learned to stop loss. Whether it is spot or fixed investment, no matter how low the risk of the trading strategy is, I will set a stop loss. Stop loss is the primary condition for long-term survival in the market.

Ill give you a simple example. I happened to be reading a book called Wall Street Ghost recently. There is a very interesting case in it. When people cross the road, they stop when the light is red and go when the light is green. This is very simple. I live in Shanghai, and almost no cars in Shanghai will run red lights because the fine is very severe. Or in other words, most cities dont have such a phenomenon. It is almost unheard of in China. Then I ask you a question. If you have crossed the road countless times in the past three years, and no car ran a red light every time you crossed the road, then you go downstairs to buy something nearby, and you want to cross the road. At this time, the road signal light turns red and all the cars stop. Before crossing the road, will you look at the road on both sides? Will you check if there are any cars going against the traffic or running a red light? Will you take a look? Even if you have not encountered such a situation for many years, will you still check if there are any cars on both sides of the road? Think about this question first. If your answer is that I will definitely look at it, and I will always look at it before crossing the road, then it is obvious that we have such considerations in every matter in life. When you cross the road, even though the pedestrian light is green and the driving light is red, and there will be no cars coming, why do you still look at it? Because you know in your subconscious mind that for life, for your own safety, whether it is financial safety, personal physical safety, health safety, etc., you must take the minimum capital preservation measures for yourself? I think crossing the road is very important. I still hope that everyone can recall their behavior when crossing the road for a long time in the past, including the behavior of all pedestrians. Even if there is no one, people still cant help but look to see if there are any cars on the road in their direction. Why? Because people actually have this kind of control over risks in their subconscious mind, but why do we lack such control in the market? Obviously, due to the influence of subjective thinking, before making any transaction, always take stop loss as the first priority. Whether it is my personal long-term experience, or if you interview any professional trader, or a well-known investor, they will tell you that controlling risk is the first step to enter the market, so I hope everyone can refer to this. In short, long-term survival and waiting for the dividend cycle of liquidity is what I think is the most effective strategy in the currency circle.

FC

I see. I might like to ask you specifically, how much of your current capital allocation is quantitative, and how much is subjective or based on timing in the big cycle, and what are the expected returns for each of these two?

Painter

Currently, no more than 30% of my total personal assets are allocated in cryptocurrencies. I have some asset allocations in U.S. stocks, Hong Kong stocks, and A shares, as well as some for capital preservation. Personally, I suggest that no matter how optimistic you are about this industry, how optimistic you are about this market, and how great your future earnings expectations are, you should not allocate more than 30% of your funds in the cryptocurrency market. 30% is actually very high for a super-risk market. If you look at many professional investors, their asset allocation in the cryptocurrency market will not exceed 10%, and even 5% is almost the same. Some people even recommend 1%. A 30% like mine is actually equivalent to a heavy position in cryptocurrency.

The allocation of trading strategies is actually like this. My personal subjective account, because I do subjective trading myself, although I have been doing it for so long, I still don’t think I am a professional trader. I am still learning every day. The reason is very simple, that is, this market will always torture you and polish you, so that you can look at it with a humble attitude and respect it. So for me personally, I still allocate the main funds in the currency circle to quantitative. You can also try this method. Why do you do this? The medium and low frequency quantitative strategy is generally mainly biased towards the trend type, which can ensure that you will not miss every bull market and will not hold on to every bear market. In the currency circle, no matter how many bull markets you have experienced and how many major rising waves you have made, then in the end, this path dependence is the so-called I hold on to a currency for a year, and finally make a lot of money, and I decide to continue to hold it, or continue to use this routine on other currencies or other markets, then a wave of bear market can take you away. So why do you do medium and low frequency quantitative? Medium and low frequency quantification is anti-human. It always starts buying when the price has risen a lot, and starts selling when the price has fallen a lot. It sounds anti-human, but in fact it is very in line with market trends.

In the cryptocurrency market, trends are always the source of all profits. For example, the price has been fluctuating between 50,000 and 70,000 for half a year. I don’t believe that anyone has made a large proportion of profits in these six months. The real profits come from the main rising wave of the bull market, that is, a trend of prices constantly breaking new highs. Or for those who like to short, their profits often come from the bear market, which keeps falling. If you want to turn things around and make a lot of money, these are the most critical market conditions. Then we usually wait for such a market, and the expectation of future returns is very simple, including the trend strategy, band strategy, shock strategy, and some small-scale shock strategies in the short and medium term that I am doing now. The expected returns are actually made based on quantitative data backtesting. Ideally, the annualized return can generally be around 50%, of course, without leverage. If it is double leverage, it will be different. Under double leverage, if you consider the long-term compound interest of funds, the rate of return will be higher. Therefore, most of my current funds in the currency circle are actually running trend strategies on a main account. Of course, I have also lost a lot in the past six months. I also opened a small account and put 10,000 US dollars. This trend strategy has been running for half a year. Because I gave it a high leverage, this is a test account with 5 times leverage. The maximum drawdown reached 50% nearly 60%, which is unacceptable to most people, but the trend strategy has the charm of trend strategy. For example, in this wave of decline on Monday, (this) trend strategy has lost 60% and is close to recovering the cost in one wave. As long as there is a trend and as long as there are large-scale fluctuations, trend strategies can benefit from it. This is what I think is the biggest advantage. Of course, it is also anti-human. These are some of the trading strategies I can recommend to you.

FC

I would like to add a small question. I think the biggest enemy of quantitative trading may be your own hands. Will you find a trader yourself? Although we have backtested and found that as long as you follow this strategy, it is likely to have a good winning rate, but the process is still very uncomfortable. How do you control your hands?

Painter

This is actually very simple. My suggestion to you is that if you have a feasible quantitative strategy, in most cases I will not trade manually, nor do I need to find a trader to trade against this quantitative strategy. All my strategies are automatically run online, and the robots do the trading. The advantage of robots trading is that, for example, the price suddenly drops or rises, and at this time it has reached a position where everyone thinks it will definitely fall back. At this time, your strategy suddenly gives a signal to you to go long. What should you do? Do it or not? If you let a trader do it, or if you decide to do it manually, you will find a very serious problem, that is, based on your own subjective judgment, you will not dare to operate, and even if you hope that the price will fall back before operating, it will be affected by human nature and emotions. This is the biggest enemy in quantitative strategies, which is what you said about controlling your own hands.

If you use a trading robot or a strategy on Trading View, you can directly and seamlessly connect to the exchange through a piece of instruction code. I have written a tutorial for this. You can find it in the highlight area of my Twitter homepage. There is a simple quantitative introductory tutorial. I have shared the whole process. Many friends use this to do it. Now they have basically left the scope of manual trading. Of course, it is very easy. Why do I say easy? That is to say, if you use quantitative strategies to make trading robots to help you trade, it has no emotions. If the code conditions meet the signal, it will send out the signal and do it. Many times you will find that the robot is simply, it opens long at the highest point and short at the lowest point, or it will be damaged after opening, etc. If it is a short-term band, it will be damaged after opening, you will think it is too bad. In fact, quantitative strategies are fitting long-term data. That is to say, if the market maintains the same rules and logic in the long term, then this strategy has past data to support it. Then, under long-term, large-scale and data-rich multiple transactions, it will achieve positive expectations of profit.

Of course, in the short term, you will definitely feel that this is against human nature, and it will definitely lose money. Look at those professional traders who always go short at the highest point and go long at the lowest point. But my suggestion is that ordinary investors, novice investors, and these leeks investors and traders in our currency circle, you must remember the process of going against human nature, not only against the human nature of the market, but also against your own human nature. Many times, including my indicator sharing group and indicator exchange group, there are also friends who have mentioned this issue. There is a very interesting phenomenon. When the strategy or robot gives a signal and asks us to go short or go long, everyone is always in a state of panic. It always feels that if we open an order in this place, we will lose money after opening it, which is very uncomfortable. Everyone is very panicked and passively executes such a signal. But there is often a very magical phenomenon. If the indicator or strategy gives a signal to let us go long in a place, it is often when everyone feels that it will continue to fall. When the indicator gives a signal to let everyone go short, it is often when everyone feels that it will continue to rise. Under such conditions, these orders can often eventually stop profit. On the contrary, everyone thinks that it is okay to open an order here, and this order will eventually lose money. This phenomenon has appeared countless times in our communication groups, and I have been observing and analyzing it myself, and it is indeed the case. So my suggestion is to try not to trade manually according to your strategy, and try to let robots and codes execute these trading instructions, so as to avoid the interference of emotions and subjective cognition to the greatest extent.

FC

I see. I think, just like what Murphy and I talked about on-chain data today, all these data are actually expressing the emotional relationship between the main players and retail investors. In fact, it more objectively reflects whether we are in a mentality of chasing highs and selling lows at this time.

Painter

Yes, because profitable trades are often counter-emotional.

FC

Yes, but in fact, many times we don’t know the depth of the emotion, for example, whether it is extreme greed or fear, or it is still on the way. I think many indicators actually give us the extent to which we have reached, which may be more objective. So I think this will be more helpful for trading.

Painter

是的。

FC

I understand. I think you can pay attention to me and the artist later, because I have read some interesting content in the artist (Twitter), I can tell you first. For example, you said that after you do quantitative, you see that a person actually earns very little every day, selling fruits, while you may earn about 1,000 US dollars a day at that time. I think if I configure my assets, the core of the quantitative part is to ensure my cash flow, because I found that no matter how much money you have, for example, when you are doing the entire long-term configuration, if your cash is always negative, you are spending more, you are uncomfortable in your heart, or it will affect your trading mood, so I think to some extent quantitative gives you a configuration of positive cash flow, including staking. I think this is a big experience I have recently, especially in a volatile market. For example, most of the people around me may be all-in, and everyone does not spend much money normally, but they will throw it away when they have the opportunity, including myself. I think the car may be of no use, so I sold it. But I think if you diversify your assets, especially in this market, when you are reluctant to sell your coins, you will not borrow money, and part of your money will continue to become your income. Even my partner does quantitative investment in the bear market, and his funds may have doubled by 50% or 60% in the bull market. He may use 50-60% of his money to invest in alpha, and may use the principal to invest in beta. I think this is also a good strategy. This may be taken out, and when we review the text, we will put in some of your previous understanding of quantitative investment. This is the first one.

Secondly, I saw that some people may be depressed from trading cryptocurrencies. When I saw you share your experience, I felt that I could relate to this part. I and my friends here all have some, lets put it in an extreme way, mental illness. I think the benefit is that I had anxiety at the time. I think the essence is that you are sensitive to the world, including the overall market trend or emotional feedback. I think many traders are like this. Everyone is looking for a set of trading strategies that can help them sleep. So I think your method today may also be suitable for some very sensitive people, so that these people can find their own trading strategies. We want to ask you specifically, for example, if you can achieve the entire asset allocation you have now, as a novice, what steps should he understand? You just mentioned quantitative, you have a basic description or indicator or strategy, what else is there? What knowledge do you need to master?

Painter

It is like this. It is impossible to say that everyone should do quantitative trading. This is definitely unrealistic. So I have been learning about subjective trading, including some of the things I often share recently about emotional control, and some subjective trading, and some trading plan formulation. I think these aspects can also be talked about. First of all, lets be down-to-earth. There are not many people in the currency circle. I have interviewed some of my group friends before. Obviously, many people in this circle do trading with a playful mentality. It is not that I simply take this matter very seriously, so I often like to do it, such as high-leverage transactions, or this kind of heavy-position transactions, or even carry orders, waiting for liquidation, etc. This is actually a pit that is easy to fall into in subjective trading. I personally have a good idea, which is what I just mentioned. For any entry and exit of a transaction, stop loss is always the core data observation. That is to say, if you want to make an order, be down-to-earth, because most people are still doing manual trading, first of all, stop loss is the core essence. You consider how much money you are going to lose on this order. This is the data you need to consider at the beginning of a transaction.

For example, I posted a tweet the day before yesterday. If you have 10,000 US dollars, and you plan to lose 500 US dollars, you will lose 500 US dollars in each transaction. Then when you do not use leverage and only do spot trading, your stop loss range is 5%, but if you use 5 times leverage, your stop loss range is only 1%. So if I want to use 5 times leverage now, I will set the stop loss space to 1%. At this time, such a prerequisite will prompt you to enter the market. You must catch some high points that you think are absolute and it is impossible to go up 1%. In this way, you can limit your entry and trading too early. Based on this, it will force you to wait patiently for the market to give a good opportunity and a good position, or even allow you to open a good position, or let you not be in a hurry and rush in if you feel that the market is going to fluctuate.

These are actually some manifestations of emotional trading in subjective trading. Many people keep losing money in emotional trading, and a big reason for this is that they dont have a basic numerical consideration. So my suggestion is that before making any transaction, first ask yourself or write down on a piece of paper how much money you are willing to lose in this transaction. As long as you are sure and know how much money you are willing to lose, then the subsequent transactions will go smoothly and will continue naturally. After you control the loss of this transaction, especially after a transaction has not been stopped, then you can leave the rest to the market and let the market tell you whether you made the right or wrong transaction. If you make a mistake, you will only lose $500, but if you make it right, the market will reward you, and you dont know how much. You just need to wait patiently for the market to tell you how much money you should make, when to stop profit, etc., and then use your stop loss to judge your stop profit based on a profit and loss ratio. This is the method I want to recommend to all those friends who do subjective trading, or think that they have not yet started subjective trading. Before each transaction, make a trading plan for this process and execute it strictly. You only need to execute 3 to 4 Once you develop a habit, you will actually be on the path to becoming a real trader.

FC

I see. I saw that you also analyzed the reasons for this decline a few days ago, including that I just saw that there should be a macro data coming out, which may not be a recession. Can you review it roughly, for example, why do you think this decline occurred, and what is the entire path?

Painter

In my personal opinion, I have found some data about this decline before, especially when I was live yesterday, I mentioned it to many friends. I found that this decline is actually largely related to the carry trade of the yen. If you look carefully, for example, the Nikkei Index, a macroeconomic index of Nikkei 225, is an overall index price of the Japanese stock market. When you look at this index, you can find that the overall trend of Bitcoins price after the ETF is passed is actually highly correlated with the Nikkei Index. On July 31 last month, the Bank of Japan announced another 15 basis point interest rate hike, and then Bitcoin fell all the way to the bottom of our Monday. In this process, you can see that the Nikkei Index and the yen exchange rate have both changed accordingly. The yen exchange rate is actually a negatively correlated change, while the Nikkei Index is a positively correlated change. So in this process, I cant help but think about how this round of Bitcoin bull market, that is, this round of bull market after the ETF is passed, came about?

In the past, I have written some articles to investigate this matter. In fact, there is some evidence that a large amount of capital inflows into Bitcoin ETFs actually come from the Japanese yen. In the past year and a half since 2023, a considerable part of the main liquidity in the global risk asset market actually comes from the carry trade of the Japanese yen. I will briefly talk about the specific operation logic of this process, which is to borrow yen from the mortgaged loan of the Bank of Japan, exchange the yen for US dollars, and then invest the US dollars in the risk market with higher interest rate spreads to do arbitrage, or directly buy risky assets. In this process, there is actually a good trading logic in the Bitcoin market, that is, I borrow yen and exchange it for US dollars, then buy Bitcoin spot through the ETF market, and then short CME futures in the CME market. In this round of CME futures market, even up to now, each months futures contract will generate a high level of premium. These premiums will gradually disappear as the contract expires, and the premiums will be smoothed. This process can provide a risk-free annualized return of 14% for large funds doing term arbitrage in the Bitcoin market. This 14% return is far higher than the interest on U.S. Treasury bonds and deposits in the United States. In this process, a large amount of funds will come from Japan and enter the Bitcoin market through ETFs in the U.S. market. The large net inflow of ETFs will lead to market funds. In other words, our ordinary people in the market are insiders. Seeing a large amount of funds inflow into ETFs will generate an emotional drive. To put it bluntly, if you buy Bitcoin now and you see a large amount of net inflows in ETFs, how will you feel? You will think that it is not just the institutions and global capital that are taking over for us, so what are we afraid of? Just go for it. So you can see that after a large net inflow of ETF funds, the issuance of on-chain stablecoins will begin to surge. The issuance of stablecoins accounts for more than 60% of the driving force in this bull market. However, the source of funds used in this process itself does not come from the increase in global liquidity, but from the original existence of funds in the market. To put it bluntly, it is about how much do you have in your hands and how much demand and purchasing power you are willing to provide. It is a process like this.

The two complement each other to form this round of bull market, and the recent wave of decline is actually due to the interest rate hike by the Bank of Japan, which has caused the repayment pressure of the funds originally used for Carry Trade. The repayment pressure does not come from the interest rate hike, because after all, the added interest of 0.25% is not high. For them, the annualized profit is 14% without leverage, and it may be higher with leverage. At this level, the interest rate hike is not the main reason, so why the decline? In fact, it is very simple. Everyone has mentioned before that there is a recession in the US data. So people consider that if there is an economic recession in the United States, which has been denied now, the Federal Reserve will cut interest rates urgently. Once the Federal Reserve cuts interest rates urgently, the part of the funds that earn the interest rate difference in the Japanese yen carry trade will form a reflux. Then when the US dollar is converted into Japanese yen and then flows back to Japan, it will lead to the appreciation of the Japanese yen exchange rate. The appreciation of the Japanese yen exchange rate will cause those leveraged funds that previously borrowed money in Japan to have a problem: our carry trade itself is profitable, but now if the Japanese yen exchange rate begins to appreciate or soar, then when we repay the Japanese yen, we will incur a large loss. So the market has formed a situation based on the possibility that the Japanese yen exchange rate may rise, and our liquidity may be in crisis at the cost level. Therefore, we choose to close a large number of positions and sell a large number of stocks to quickly repay this part of the money. Such a panic has emerged, and this panic has contributed to this wave of sharp declines.

In fact, from the market level and the supply and demand level, it can be seen that the market itself has experienced more than half a year of volatility at this position, and there has been no real large-scale plunge. In other words, the market as a whole is still in a state of game within the range. This situation will naturally prevent the market from seeing large-scale liquidations for a long time. In this case, the probability of triggering such a high-volatility market will become greater and greater. I have shared an indicator before, which is how many days Bitcoin has not seen a drop of more than 30% in the daily closing price. So far, this value is still at a relatively high level, and it is the highest position in history. There has not been a drop of this level in more than two years. (So) the market is bound to carry out such a round of wash-out, or liquidation.

Therefore, the three complement each other and connect them, which makes me think that in this round of market, we do not seem to have experienced a liquidity bull market like that in 2021 or 2017. That is to say, the overall liquidity of the market is not because of the increase in global liquidity, so our bull market has come, but more because of the difference in the arbitrage force of the yen, which has opened a big hole in the exposure of this part of liquidity at the Bank of Japan, and a large amount of funds have flowed out and flowed into risk assets in countries around the world, which has driven this round of bull market that seems to have no liquidity but has liquidity. In my opinion, this bull market is different from the real liquidity bull market that I expect, so I have been mentioning that I will compare this round of bull market with the bull market in 2019. What kind of form did the bull market in 2019 take? It is a wide range of fluctuations with gradually declining highs and lows. In this process, as long as there is a big drop, there will be a big rise after a period of volatility. After a big rise, there will be another big drop after a period of volatility. In fact, the logic of the two is consistent with each other. Their corresponding financial conditions and economic backgrounds are also very similar. They are both in the early stages of the Federal Reserves interest rate cut or has already started to cut interest rates when it sees the risk of economic recession. That is to say, the interest rate is still at a relatively high level, and at the same time it has not been lowered to a level that makes everyone comfortable. Therefore, the market will experience this long-term instability in emotions and expectations, and it will be more like the bull market in 2019.

Of course, if you look back, the small bull market in 2019 is generally a long-term shock wash for the liquidity bull market in 2021. In this process, a large number of potential chips that may be sold in the future have been washed away in 2019 until the black swan in 2020. All the chips that may prevent the bull market from rushing to a higher position in the future have been washed away. This process must be cruel, boring and painful. Many people actually can’t make money in 2019, and they have to wait until 2021 to make real money. Similarly, I think that many people will not make money in 2024, and they may have to wait until 2025 to make real money. This is my idea of a bull market based on the macro and big background.

FC

I understand. So you think this is still a small bull market, or a preparation stage before the big bull market, right?

Painter

Yes, I still think that it is actually a wash-out. My idea is actually very simple, that is, if our current price, let me talk about Bitcoin first, because Bitcoin basically determines the trend of the entire cryptocurrency market, if Bitcoin can have a relatively strong market in the future, then I think this round of bull market may be almost over, it may peak completely after the Fed officially cuts interest rates, and then until the middle of 2025, or the third or fourth quarter of 2025, it is possible to get out of the so-called liquidity bull market we expect. Before that, I think this market is more of a long-term wash and game, and it is unlikely to see the strong bull market we expect. I also talked about this in the article pinned on my Twitter homepage, whether this bull market is more complicated than previous bull markets. This article actually also mentioned the part about liquidity. During the bull market from 2019 to 2021, although the price was fluctuating downward, if you look at the market value of stablecoins and changes in global liquidity, liquidity and the market value of stablecoins were slowly increasing. Until the bull market in 2021 was finally triggered, the liquidity of stablecoins in our currency circle had increased several times.

If we want to get out of this bull market in the same way, I have calculated that we may need about $25 billion of liquidity injection to make this bull market continue. So the current price fluctuations at high levels are, I think, waiting for liquidity to appear, waiting for global liquidity to recover, and waiting for a wave of so-called large-scale money releases to come. So we are now fluctuating downward, which is actually very good. In fact, it gives us opportunities. If you look back, if you know that there will definitely be a round of liquidity bull market in 2021, you will find that every decline in 2019 gives you the opportunity to buy at the bottom and build a position, but in fact, in 2019, few people can really build a position, because that kind of market is really torturous, just like the current market. I think this kind of torture is very good. It washes away a lot of paper hands, and the ones that really stay are diamond hands. So we still have a firm confidence in the future of this market in the long term, that is, in the monetary environment, we believe that the currency will always depreciate in the next 10 years. As long as you have such a firm idea, then I think there is no problem in investing in Bitcoin, including cryptocurrencies.

FC

Understand. What kind of indicator should we look at to know that the bull market is coming? For example, what should a novice focus on?

Painter

I pay attention to some indicators, first of all, interest rates, and secondly, the amount of balance sheet expansion and contraction. The interest rate is like this. Many people are waiting for a bull market to appear when interest rates are cut. This is actually a misunderstanding. Interest rate cuts often do not represent the beginning of a bull market. Interest rate cuts represent the preparation before the bull market begins. Based on my past data, I have concluded that when the Feds interest rate drops below 1% or 1.5%, the bull market often just begins. In fact, it is not good for the market in the early stage of its interest rate cut. The market will have repeated emotional changes due to the Feds interest rate cuts. Why is the interest rate cut? Is the economy not doing well? If the economy is not doing well, will there be another big crash? Or why is the interest rate cut so urgent? Will there be another black swan? The markets emotions will be repeatedly provoked back and forth in the matter of interest rate cuts. Emotions are an unstable situation, so you can see that the market in 2019 is a sharp drop and a sharp rise. Such a market keeps appearing, and finally a big drop and a big surge finally put an end to this market. After March 12, 2020, the Federal Reserve directly lowered the interest rate to a level close to 0. Since then, liquidity has begun to release unlimited QE in large quantities. Only in this way can a big bull market be triggered. So we can actually wait patiently. It does not mean that a bull market will come as soon as the interest rate is cut, but that the early stage of the interest rate cut is a painful period. After the painful period, the bull market will come sooner or later. Based on the current schedule of the Federal Reserves interest rate cuts, I personally speculate that the next round of bull market should be in the middle of 2025, or around the third quarter. It may really come, and that is when we should be prepared.

FC

I understand, because I saw your pinned article actually said that this (bull market) is different from the previous ones. In fact, it mentioned three points: the first is slow growth, the second is poor liquidity, and the third is lack of traffic. So according to your logic, if it is next year, these will actually be changed, because now is not a real bull market. This is my understanding.

Painter

Yes, in fact, I think we are already in the early stage of the bull market. If you take a look at the weekly and monthly charts, it seems that the market in 2019 is not a bull market or a bear market at all. It is just the first wave of a big bull market. It first rose for a while and then fell for a while. So I think we may be in this state now, but because of the influence of the Japanese yen carry trade funds I mentioned just now and the superposition of the election year, this round of bull market and the subsequent shock correction are not as extreme as in 2019, that is, it basically fell back to the starting point from the starting point. In this round of bull market, I think we may maintain long-term fluctuations in the price range of, for example, above 30,000 to 40,000 yuan, until liquidity is fully released into the market, then our bull market can continue, including the 25 billion US dollar gap I mentioned earlier. With the recent net inflow of ETF funds and a certain increase in the value of stable currencies, the current gap is probably only more than 20 billion US dollars. In other words, according to this logic, there will only be a gap of 15 billion US dollars in another quarter, which means that in a maximum of 3-4 quarters, exactly one year, that is, this time next year, liquidity will be fully filled. At that time, the bull market will be like a pile of dry firewood waiting for a match, which can be triggered at any time.

FC

I understand. I think there are still about 10 minutes left. I will ask some other questions. You have been emphasizing stop loss at the beginning. I wonder what else you cannot do during your trading process, or what you must pay attention to, besides stop loss? Painter What you cannot do, my advice is to never make a big mistake. Many traders have mentioned that if you lose 3%, you only need to make back 3.0% to get back your investment. But if you lose 30%, if you want to get back your investment, you need to make nearly 40% or 36% in the next transaction. So making a big mistake will cause a large drawdown on your account and your personal capital account. This is the most dangerous. It will not only affect your overall capital level, but also your mentality. Many people can actually stick to the rule of no more than 3% or 5% of a single drawdown at the beginning, but when they suffer losses several times in a row, they will have a kind of thinking that they want to make back all the losses they stopped before. To put it bluntly, he has self-doubt about his long-term profitability in the future. If a confident trader believes that he can make continuous profits in the next 2-3 years, I will make 10% on one trade and lose 5%. As long as you believe that you can do this and always make high-winning trades, then you will not make big mistakes in the process. You believe in yourself, but many people do not believe in themselves. Many people think that they can only rely on one wave to make a profit. They always want such a thing. To put it bluntly, they do not trust their future self, so they will use high leverage and heavy positions, which will in turn aggravate this vicious cycle.

So my suggestion is that you must first believe in yourself. You must believe that the traders who really make money and make long-term profits never make money from one transaction. It is a long-term stop loss and long-term profit, and countless profitable transactions are superimposed. Those who really make money from one transaction, such as Liang Xi, everyone knows that he made a fortune in the 519 bear market. Look at how he is now? Those who want to make a profit from a wave of transactions and turn things around will never turn things around in the end. On the contrary, those who are unknown make one order today and one order tomorrow, with a small loss today and a small profit tomorrow, but they always make more than they lose, and the winning rate is always greater than a certain level, which is the level of profit expectation that meets the profit and loss ratio. You believe that they will always make it with the compound interest of funds in one or two years. Then it is still the same sentence, dont be anxious, use time as leverage, dont use funds as leverage.

FC

Understand, what do you think is the strategy you recommend for everyone in this volatile market, assuming the bull market comes next year? For example, of course, running quantitative is one way, or just holding cash?

Painter

My suggestion is that if the price reaches a new low, you should buy a 10% position at the bottom. Every time the price reaches a new low, including the recent round of market when it is at a high level, there have actually been two new lows, including our wave on Monday. If there are new lows in the future, you can slowly build a position. Anyway, from my perspective, the big bull market in 2025 will not be absent after the release of liquidity. Looking back at the market in 2019, every time the price reaches a new low, if you build a 10% spot position every time the price reaches a new low in 2019, then by 2021, your average position price will be about more than 6,000 US dollars or 4,000 or 5,000 US dollars. In fact, it is enough for you to make a lot of money in the big bull market in 2021. (Now) It is still this idea. Dont expect the market to pull up immediately and get out of the big bull market, but give yourself more opportunities and more choices. So my suggestion is to keep trying to buy at the bottom at new lows.

I have another suggestion for everyone. I did a survey on Twitter the day before yesterday. If there is a bull market in the future, and if you also think that there will be a bottom, when the bottom really appears, which coins will you buy at the bottom? Option one is Bitcoin and Ethereum, option two is altcoins and value coins, and option three is Tmall and MEME coins. More than 1,700 people voted, and only a few percent chose altcoins. I believe that all friends who play altcoins have been heartbroken in this round of bull market, but in my personal opinion, the bull market of altcoins will always be coordinated with liquidity, just like in the U.S. stock market, when liquidity is abundant, the Russell 2000 and small-cap stocks will rise very well, and even outperform the broader market. The same is true in the currency circle. When liquidity is abundant, altcoins and small-cap coins will definitely outperform Bitcoin. So if you are preparing for the big bull market in 2025, then when you see altcoins next, if their prices fall to near their previous lows, or to a very low position, I think you can try to build a position. Of course, I won’t mention which specific position to build, but this is the idea anyway.

FC

OK. The last question is about our future personal growth. I dont know who are the three KOLs or bloggers you follow the most, that is, your information source. The second one is which trader you like more. The third one is if you recommend a few books, what would you recommend? Lets ask them together.

Painter

The first one is the recommended blogger. I don’t follow many bloggers on Twitter. If you have ideas about subjective trading or personal trading systems that you want to create, I recommend a blogger named Luo Sheng, but his main update platform is YouTube. I think this is the most recommended blogger. I don’t have many bloggers on Twitter to recommend for the time being.

Regarding the recommended books, the first one is that I always recommend all friends who want to trade well and take trading seriously to read a book called Turtle Trading Rules written by Dennis. I read this book over and over again when I have nothing to do. It mentions a key factor, which is about trading execution and trading rules, and self-discipline. I think it is very important for people who want to trade. I like a trader. I don’t know if you still know about it. In the last bull market, from 2019 to 2021, there was a trader called Fat House. I believe most people should have heard of him, but he has completely disappeared now. If you know, Fat House’s trading ideas are actually very simple. He used a resolute execution trading system, and he implemented it for a long time, and achieved a very good result of more than 30 million US dollars with 200,000 US dollars. The logic is very simple, that is, it has a simple trading system, and there are not even any indicators. To put it bluntly, it is to go in when the price breaks through the new high, and stop loss when it falls back and false breakthroughs. Throughout his entire trading career, his trading success rate was only in the teens, 18% to 19%, but his return rate crushed all the traders I knew in this market. The logic is very simple, that is, you have a trading system that has worked well in the past Bitcoin market, you just need to resolutely implement it and use time as leverage.

There are two more books I can recommend to you. One is about if you are interested in altcoins, you can read a book called Wyckoff Trading Method, which mentions the accumulation and distribution range, which is very useful for altcoins, even for coins controlled by the main force. Another one is to do some simple technical analysis, there is a book called Advanced Trend Technical Analysis, this book can help you get started with technical analysis, these are all my sharing, thank you.

FC

Thank you for exactly one hour, welcome everyones attention.

This article is sourced from the internet: Dialogue with Painter: When will the bull market return? 3 dimensions to explain how this bull market is different from the previous ones

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