Veteran trader explains best time to cash out of Bitcoin | Interview with Charlie Burton

All right folks, we have Charlie Burton, who is a professional trader with 22 years experience, has been trading full time since 2002. He only got into trading by chance when a friend invited him to a trading seminar which he found fascinating. After that, most of what he has learned has been self taught. He shot to fame when he was featured on BBC's Million by the Minute program back in 2014. Charlie believes there are no such things as natural traders. Everyone has to learn somehow. Charlie, how are we doing today? Thank you for joining us.

Good afternoon. Yeah, thanks for having me on again. So it's been a few months but yeah. Hi guys. I've seen a few of you before so yeah, thanks so much for having me on.

Well, you're obviously a really accomplished trader. How do you like incorporate the news and like the more randomness of news now it's like we saw the announcement with Litecoin, the fake announcement with Litecoin. It really took the market for like a roller coaster. How do you incorporate that into trading?

Well, I must, I just, let me just make this very, very clear. I'm predominantly a forex trader. When I'm, when I'm invested I have investments in Bitcoin and, and in Ethereum as well. But I'm not short term trading those. So as far as news is concerned for me and my trading that is more about the economic type news releases that come out, that come out of the US predominantly because I'm predominantly trading the dollar and so that's what's more important to me. So yeah, like most people I just have the economic news calendar. I consult that at the beginning of the week and each day just to remind myself what main news be coming out. But in the main I again if you, I don't day trade as much as I once did, so I more swing trade. I'm in front of my, I'm in my office every day but I'm more likely to be putting on positions that I'm going to be trying to hold for quite a bit longer. So news becomes less important the higher the time frame that you're trading over. If you're an absolute intraday trader and you're trading with leverage, then news becomes really important. But if you're looking to hold positions over a longer time frame, then all the squiggles that go on and the bits of news that are released which might create all those squiggles in a market which are really important to a day trader because they might get stopped out of their positions if they've got Stop loss levels and stuff become less important to a swing trader who's going to have wider stop losses in the market. So those sorts of things have let carry less impact for me. But they used to.

Charlie, I want to use your more extensive background, especially on FX markets. So I want to understand your take on the Bart Simpson formation. That happens a lot on Bitcoin and Ethereum. So Bitcoin is trading at that price and there's a bump, it stays for a couple of days, then it plunges down again, forming the bar. Simple on. Have you seen that on other markets? And why do you think that happens so much?

I think traditionally you've always seen consolidation periods anyway. And I quite like that sort of pattern actually in the cryptocurrencies and in Bitcoin, like you've just said. And when I've been on before, I've been talking about that very pattern. I think it was just the last time I was on that. I think that part of the reason is that in the cryptocurrencies it's a younger man's game, younger than me probably for a lot of people. So there's a lot of people who are younger, maybe slightly lower younger generation than me. I'm 48, so we're probably looking at, don't get me wrong, I'm invested in the stuff and I've got plenty of friends who do. But I still think there's a lot of younger people involved in that. And what comes with youth is emotion. And so one of the things that we all know as experts that markets constantly do is markets by their very mechanism, pry on people's emotions, doesn't matter what the market is, that's just natural behavior of the market. It's a living, breathing thing. And a lot of the time the market's job is to try, and I always say to try and shake off as many participants as it can. Even if the market's trying to go higher, it will still manage to shake off people one way or another, either through fear of them just getting to a point and they just have to bank their profits or as we know, in flushes and things like that. And again, prying on that emotion and coming back to the types of consolidations you're talking about where you just get these periods where it just goes flat for a while. I think that one other thing and an emotion that younger people are more susceptible is boredom. And so you get people, they get bored out of their trades. I was talking about this when I was last on and so they're like, oh, I've better go and find something else. This bitcoin's going sideways the last two months. Whereas for me, I love that type of consolidation because, yeah, I'll just use that to get in. That's what the pros do, get in, then sit there because they're not necessarily having to use the same leverage. They've not got the same sort of time horizon who someone's younger saying, come on, make me some money today, you know, or this week. Whereas us older, older guys and the pros can sit there and ride that out and accumulate when others are getting bored and effectively getting flushed out of their positions that way. So I love those consolidations.

So does having a lower win rate mean lower profits? What are your thoughts on that?

Okay, so, yeah, I mean win rates, I love them because the younger, when I say younger now, I mean the newer, the trader out there, whether you're a trader in forex stocks, cryptos, doesn't really matter. I find over the years, I've been training traders now for about, well, 15, 16 years. And what I find is that newer traders want high win rates because we want to be right as much as possible. We go through life, we go to school, we're taught, we're educated to be right as much as possible. Pass your exams, get the highest pass mark you can. You go into the working world and, you know, being wrong is seen to be bad. And yet we then we come to trading this whole trading universe and we have to rewire in a way because we have to appreciate that being right isn't as important. And yet that is still important to people who are newer. So they prefer to be right more often. But what I find is that the more mature a trader becomes, their win rate actually slightly comes down and yet they become more profitable. There's a really interesting survey that was done here in the UK, a big broker, I think it was done with IG Markets, one of the biggest CFD brokers here in the UK and they looked across something like 40 million trades and they found that across these 40 million trades, their clients had something like a 60% win rate. And yet those clients were losing money because their losses were so much bigger than their gains. So even though they were right 60% of the time, they were still losing money. So win rate isn't that important. So for me, coming back to your question there, no, having a low win rate can actually be highly profitable. My biggest risk to reward ratio trade in recent years was a 1 to 56. I've had a few in the recent past of well above 1 to 20 risk to reward. So for every $1 you risk making 20 to $30, you can afford to have a number of losing trades if you have risk to reward ratios like that. And that's what I quite like looking for. So risk reward is more important to me or overall profitability to me is more important than just being right or having a high win rate. In fact, my win rate is probably less than 40%.

Do you think that you mentioned the maturity you get over time? Do you think that like diversification is something that comes along with the people as you mature as a trader, you get more likely to diversify into different assets. And what's your opinion on just diversification?

Yeah, well, like you've just said, I think from an investment perspective, as you get older, yes, you'll diversify more. So for investments, yes, I diversify. Ironically, from a trading perspective, I actually focus more now than I ever have done on smaller and narrower range of markets for my day to day, week to week trading. Then I'm more focused on just trading the dollar than looking and chasing the next big move. Like oil had a great big move yesterday sort of thing. I'm not jumping on that just because oil's gone up. That's not on my horizon. So I found that focusing on a few markets has been better for me over the years than trying to spread myself too thinly. But that's from a trading perspective that's very different to investing. Investing, yes. Diversification I think is a good across cryptos, I think it's a good thing to do. But from a trading perspective then? Actually, I think focusing on a few markets is better than trying to look at too much.

So Charlie, I've seen that you practice martial arts in the past, don't know if you currently do it, but do you think that this discipline, this mind focus is important for the trader and how can people, regular people, improve it?

Yeah, I, I, well I can, I, I did karate for 20 years and I used to compete for England. I fought overseas and stuff. So yeah, I did it from a, I think I took it up when I was 15 years old and I, I had to quit by the time I was about 35 because of back trouble. So I was plagued with back trouble for many years. But I did get to a reasonable level in martial arts. But did it teach me discipline for, for, for trading? I would say, actually controversially, no. Even though it gives you a lot of discipline within martial arts and maybe within other, other Aspects of life, I would say no. But one thing it did give me, I would say the number one thing that, that martial arts gave me was tenacity and that ability to just pick yourself up after someone's just kicked you around on the floor. And we, you know, I'd go to training sessions with like world champions and we'd all just end up in a big scrap, like a bit of an, back in those days, a bit like modern day mma, we'd all be scrapping on the floor by the end of the class and I'd walk out with black eyes every week and scratched up and all that sort of stuff. And a few breaks here and there. But you were taught to get up, you couldn't stay on the floor. If you could get up, you got up and they would beat you to see how you reacted. Did you give up and just stay on the floor? Did you get up and try and carry on fighting? And I think it was that sort of mindset that carried me through into trading because I could have very quickly, easily quit trading in my first year. I took a $40,000, 40,000 or so dollar account, up to a quarter of a million and then gave it all back again in my very first year of trading. And I could have so easily quit back then. But again, it was just that DNA in me that, well, you've got to dust yourself off, get up and carry on with the fight. So for me, the martial arts taught me that, that never quit attitude really. So that was the main thing, discipline in trading, as it turns out, I had to learn. So it was just as a result, I've got a natural, I'm a natural greed based trader. So you've got greed and fear based traders and I definitely on the greed based scale. So I was always going to be that person who would take a bigger trade, oversized positions, do all that sort of stuff. And so I had to learn the hard way to build discipline. And it was a result actually of that greed that I did it. Because in that first sort of 18 months or so, once I'd got over that initial loss, making the money and then losing it, then I went through this phase where I'd make money for a few months and then give it back very, very quickly, within a space of a week or two, and then make money for a few months, give it back again very quickly. And what I was doing is going through this cycle of being disciplined and trading quite well and adhering to my trading rules, then getting, after a few months, getting a bit overconfident and then thinking, I think I'll trade that or I'll trade this and you get overconfident and then you give your money back, you give your gains back. And I went through that for probably the best part of a year. And it was by going through that cycle that I realized what was going on. It was just that lack of discipline. So that was a big wake up call for me. And I realized that if I could get on top of my discipline then I stood a much better chance of breaking out of that pattern of just being up, you know, basically having an account balance which was no need for.

Me to get in karate. I just need to keep my rules simple and keep them on track. Don't change them every time. Is that it? Sorry, what, so what a trader needs to do to improve its keep the rules simple and obey them. Don't change the rules.

Yeah, every time, absolutely. But I mean, I also say, look, we are all fallible. We are human beings, we are absolutely flawed, all of us are. And especially in, in, in the front of the markets, we are, we are naturally influenced by greed and fear to one propensity or another. So absolutely we need to have some simple rules. But I would also say that a lot of visualization is good and in order because you can have some rules written down. But because I've done that, I've had rules written down and then you sort of discard them and put them to the side or just this one time I'm going to take this trade, you know, so I think there's, what's important is a lot of self talk and if I do this now, if I take this action now, if I take this trade now and it doesn't work out, will I kick myself? That's a great, I've used that for years. It's a great line to just sort of act as an arresting mechanism to stop yourself. For me being a natural greed based trader, to stop myself from just jumping into trades which I shouldn't be in and to stop myself from going off, off of my rules, so. And away from my rules. So if I take this trade now and it doesn't work out, will I be upset with myself? And if the answer is yes, you can't take the trade and it's a case of just a lot more talking to yourself a bit like if you had a mentor. So if you, Marcel, if you were sat next to, you know, a relatively youngish novice based trader and they were about to take trades, they would probably because you Very. Because you're sat there, they probably would have much, much better discipline than if they were sat there by themselves. So what you need to recreate is that environment as if someone was a mentor sat next to you. And the only way to do that is to ask yourself questions because that's exactly what you would be doing. You'd be saying to someone, why are you doing that right now? What's the consequences of you doing that right now? And if people can create that environment for themselves psychologically, then that really helps them with their discipline.

And so you've touched on like the mental part about trading. But I'm also kind of curious to learn more about like the technical aspects. So what are some strategies that you like to deploy when you're trading?

Yeah, can I share charts or can on my screen?

Yeah, definitely. Yeah, definitely. We have a share screen button there.

Okay. If it's. Let's see if I can do it. Alrighty. So I want this one. Okay. So you should be able to see my screen. Got a screen up? Yep. So I use a lot of. I'm just going to talk technical analysis here and I use a lot of multiple time frame analysis as well. I'm a big believer in not just looking at it. Let's say a daily chart. I've got a daily chart of bitcoin up here, but not just looking at a daily chart. I'm going to be looking at the weekly and the monthly as well. So I have that sort of top down approach. I want to get some alignment within, within what I'm looking at. But so for example, at the moment I just use a few moving averages and an MACD indicator down the bottom and price action. But so as we can see on my chart here, bitcoin came down when it had that flush last week or so ago down to the 50 day moving average. It's my black moving average down here and we can see it's starting to move off of that right now. Now as far as strategies are concerned, I have so many. But like I said, multiple time frame analysis is important. But for me a first retest of a key moving average, like a 50 day moving average is always going to be something I'm interested in. So if I was bullish on this market and when it's pulled back on that El Salvador day there, then that's going to be a level that I'm going to be looking to buy at. So a first retest of a key moving average, like a 50 day moving average. But I wouldn't do that by itself. Like I said, there would have to be multiple timeframe analysis going in, going on as well. But that would be something very, very simple that I look at. If I'm bullish on a market, I wait for the retrace. It's not rocket science. And you can either use Fibonacci if you're looking at. If you're a Fibonacci person for looking for retracements. I like using moving averages because I find one thing I always say about moving averages is that people just say, oh, it's a moving average. Yes, it's an average of price. And people forget that it is. Price is average. And price likes to retrace to its average price because it's a natural mechanism of prices. It likes to mean revert. It likes to revert to the mean. And what better mean is there than an average of price and therefore a moving average and something like the 50 period. Moving average is one of my. Always been one of my favorites. So I think moving averages are a very graceful way of. If you're looking at charts of doing some analysis, but it's not moving average crossovers, I'm not interested in that. I'm using moving averages as support and resistance, the angle of them, the number of tests that they may be having. So I do a lot of stuff like that. But the other thing that I will look at, you ask me some ideas. If you look at the MACD here as well, I do like divergences. I use MACD indicator for divergences. Bitcoin was diverging over those few weeks, as you can see that. Look at the blue line here. You see that was in decline as price was making new highs. That's always going to give me a little bit of a warning. The price obviously could soften. If you see marginal new highs in price, where we've got a high price here of a high price here, then it pulls back and then only makes another marginal new high before pulling back again. And then the same thing again before. All right, it ended up retracing it all in one day there. But there's an even better example. Earlier this year when I was banking some of my bitcoin profits from last year. Again, you can see this very clear divergence here where price was making marginal new highs here in February through to April. You can see this divergence is coming in on the chart there. So they're just a couple of examples. I can't go into too much detail in the space of an interview, but certainly divergences are quite like, provided it's coupled with maybe some resistance. But what for me, what was absolutely fantastic with bitcoin back in the early in the spring of this year, when it was making, going and doing those divergences, is, oh, my God. The sentiment was so euphoric and that I had friends who are not traders phoning me up saying, charlie, I want to get into trading, can you buy Bitcoin? What do you think? I want to buy Ethereum. And when you've got your tree surgeon phoning you up saying, I was in the pub last night and my friends telling me I should be buying Bitcoin, you're like, right, that's it, I'm out.

Yeah.

And I was joking with him when he phoned me up. He was just one person and you're thinking, that's it. When the. They always said in the 1920s where they said, when you shoe shine boys giving you stock tip advice is, you know, you need to get out of the market. And that was a classic from Reminiscence of a Stock stock Operator, the famous book. And these days when your mate has been down the pub and they're asking about buying Ethereum, then you might want to be worried a bit. So the average guy who's got no interest at all in the markets and starts hearing about it, that's when I get concerned. So back in the spring of this year, it just felt so euphoric. I'm sure you guys felt the same way that that gave me that sort of warning sign. I thought, I've got to bank some profit because at that time. So it's a big thing for me. Sentiment.

Do you have a current sentiment towards Bitcoin or outlook on bitcoin in the market?

Yeah, absolutely. I mean, I try and tap into it just using like Twitter feeds and picking up on general news. So I use various financial sites. So, yeah, I'll try and tap in. A great one is when Goldman Sachs starts talking about any market and they start getting really bullish on something. Then again, I use that as a warning sign. If the big banks are starting to talk about a market going much higher or much lower, then I'll usually look for reasons why it might do the opposite. So, yeah, absolutely. Sentiment is, is key for me because I think that it's that old adage that if everybody's in, who's left to buy. But if you've got a bull market whereby people are pessimistic, bit like the stock markets over this past year, quite a lot of pessimism, actually, because everyone's looking for that stock market crash. When's the S and P going and the Dow going to crash? And yet they don't. They have a short pull back and then up they go again. And of course, at some point they will crash. But when the masses are still pessimistic, at least the fuel is there, that they might at some point throw the towel in and say, right, I better get on board because this thing's still going higher, there's still at least pent up potential demand. But if everybody's in and everybody's euphoric, that's the recipe, as we know, for a crash. And I felt that that was the case in bitcoin earlier this year. But funnily enough, I don't feel that right now. I'm not, I don't know what you guys are picking up on, but from a sentiment perspective, you guys are much more tapped into the crypto community. But certainly I'm not. My tree surgeon hasn't phoned me up for a while, so I think we're safe for a while.

Excellent points and we appreciate your insights today. This is Charlie Burton, a professional trader. He was giving us some of the, the great strategies to look at. We're looking at charts, some of those simple tips. And we appreciate you jumping on today's show and walking us through your story and what you like to do when you're looking at markets and charts in particular. So thank you for joining us today.

Charlie, thanks for having me on.