[Basics to trade cryptocurrencies correctly | Part 2] - Crypto Academy / S6W3 - Homework post for professor @nane15.
Hello friends. Hope you all are doing well. This is the 3rd week of the 6th season in steemit crypto academy. I am so excited to participate in this homework for professor @nane15. This week, the professor has delivered a lecture on Basics to trade Crypto Currectly. After reading the homework and getting the concepts, now i am going to answer the assignment questions.
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Question 1
Explain your understanding of charts, candlesticks and time intervals. (Use your own words and post screenshots).
The crypto exchange market allow you to perform trading and to earn reward. There are high chances of getting profit if market price goes high. But if the price goes down, you will lose your assets. So the market is versatile which keep on changing its trend. The market direction keep on changing, sometime it goes upward and the traders earn the profit and sometime the traders lose the assets because of the market downtrend movement.
So we have to analyze the market before taking step into it. There are multiple ways to analyze the market and one among them is technical analysis. The technical analysis is a type of analyses of crypto market to predict the market future. There are a lot of technical based tools and indicators. The chart is one among them
Chart is the graphical representation of the market data. The price of the coin with respect to time is shown on the chart. The chart is very effective and easy way to analyze the market. One can easily predict the market future by using the past and present price data. The chart of the coin show the behavior of the buyers and sellers in the market . The behavior of the sellers and buyers effect the price. That's why it is presented graphically in form of chart to determine the price of the coin within a specific time period.
The chart is most commonly and basic tool of the technical analysis which is use to analyze the market effectively. We can apply multiple other tools to predict where the market move move next. We get to know about the traders behavior within specified time period. We use the past data to predict future.
The chart show the changing in price with respect to the time. The price of the coin is written vertically and the time period is given horizontally. There are the candles in color green and red. We can change the colors of candles. Each candle represent the data of the coin price for specific time period.
CandleStick Chart pattern
The Candlestick chart is a technical tool which was developed by the Japanese farmer in 1990 which has become a most important and popular tool to analyze the market. This is the best and easy way to analyze the market. The traders can predict the market future easily using this tool.
There are candles on the chart who's color is red and green by default. You can change the color according to your own choice from the setting option.
The red colors candles on the chart represent the market downward movement. And the green color candles on the chart represent the market upward movement. If the buying pressure is high on the market, you will see that the green candles on the chart are will move in upward direction. If the selling pressure is high on the market, you will see that the red candles on the chart will move in downward direction.
The Japanese candle stick chart help you to predict the market trend. When the chart is moving upward, it mean that the market is in the bullish season. If the chart is moving downward, it mean that the market is in the bearish trend. We can predict the market movement and the behavior using this chart.
The traders get the light about the market from the chart behavior. The support and resistance level on the chart help the traders to takt the important trading decisions. We get the entry and exit spots using this tool. If the market is in downtrend, it is the best point for the traders to enter into the market and if the market is upward, it is the best point for the traders to sell the assets and exit from the market.
The demand and supply rule is use to help the traders to predict the market. If the selling pressure and the demand is increase, the supply get decrease because the demand is inversely proportional to the supply. When the demand increase, the supply decrease and when the supply increase, the demand decrease.
When the demand is high and supply is low, the market is in uptrend. When the demand is low and the supply is high, the market is in the bearish trend.
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The Japanese candle stick chart, help you to get the information about the market closing and opening price. The highest and lowest price of the assets is also get from this chart. The traders can predict the market and take the important trading decisions from the Chart easily.
Time Intervals
The chart is combination of time period and the price data. The movement of the price of coin on chart is determine by the time. We can get the data about the coin price for different time frames. The chart can be organized in time frame from month to year and from hours to minutes. The one day time frame chart will give you the price history for one day. In such situation, each candle will represent the price data for one day. Mean 30 candles will give you the price data of whole month. If we set the time frame as 5 minute, we get to know even about the minor variation in the price.
The above is the 1 hour chart which mean that each candle is representing the data of one hour. If we collect 24 candles, we will get the price data of coin for whole day. The whole price development of the coin can be seen within a single candle if we set the time frame for 1 day. Each changing in the price of coin within the 24 hours will be get by 24 hour candlestick
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Question 2
Explains how to identify support and resistance levels. (Provide examples with at least 2 different charts).
Support level
The Support level can be define as an area where the selling pressure is drained off and the buyers enter into the market to push the price of assets in upward direction. The buyers enter into the market, buy the coin which stop the price to fall more.
At the support level, the buyers place the buy orders. Because of execution of a lot of buy orders at the support level, the price of the assets bounce off because of which, trend reverse from bearish to bullish.
When the support level is observed for long time period, it is considered more affective. The support level for just few minutes is not affective much. The strength and effectiveness of the support level depend on the time period for which it is identified.
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The resistance level can be define as an area where the buying pressure is drained off and the sellers enter into the market to push the price of assets in downward direction. The sellers enter into the market, sell the coin which stop the price to rise up more.
At the resistance level, the sellers place the sell orders. Because of execution of a lot of sell orders at the resistance level, the price of the assets bounce off the resistance level because of which, trend reverse from bullish to bearish.
When the resistance level is observed for long time period, it is considered more affective. The resistance level for just few minutes is not affective much. The strength and effectiveness of the resistance level depend on the time period for which it is identified.
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The support and resistance level are best to place the sell or buy orders. When the support level has been broken, place the sell order because market will be expectedly trend downward. When the resistance level broke, place the buy order because market is expected to raise up. But while placing the resistance and support level, we should have a clear indicator free chart so that we can have a clear view of the market structure and the price action on chart. If there would be the use of indicators, it will be messy and we won't be able to pick the resistance and support level.
Then we should focus on the points at which the price is pulling upward again and again. These are the support level spots. Draw the horizontal lines by joining those points for level. Then check for the spots where the price again and again bouncing back to downward. This is the resistance level. Draw the horizontal lines by joining those points for resistance level.
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Question 3 - Identify and point out Fibonacci retracements, round numbers, high volume, and accumulation and distribution zones. (Each on a different chart).
Fibonacci Retracement
The crypto market is highly versatile. The coin keep changing their trends. There are basically two trend which is bullish and bearish. While moving in a trend, the coin do not have a steep pave path to the depth of the trend. But zig zag moves are formed by the coins. In the result, the retracement and impulsive waves are formed. Impulsive are the waves which are formed when coin move in direction of trend. When the coin move in opposite sde of trend to form the low high or high low, the retracement formed.
The retracement is good opportunity for the traders to enter nto the market. Price is low here so traders can get it a good buying spot. In order to know the depth of the area of support and resistance zone, we use the Fibanacci Retracement sequential ratio. There are multiple Fibanacci level in the crypto world which are 23.6%, 38.2%, 61.8%, 78.6%. These are the fibanacci level which we get through the fibanacci sequential ratio. In these level, we exclude 50% because it is not obtained from the sequence. The fibonacci help us to identify the reversal points in the market.
There are some points where the price is intended to reverse afer the formation of retracement. We can get those points through fibonacci retracement. For an downtrend, the fibonacci is drawn from previous high to next low. For the uptrend, the fibonacci is drawn from previous low to current high.
Round Numbers
A form of trading where the price value is represented in form of rounded figures like 1.00, 1.20, 1.40, 1.563,...and so on. The price is mostly tend to react on the rounded figures. That's why these are very important price levels for the traders. They have fullattention on these levels. While placing the stop lose which are two the exit points in the crypto market, the traders focus on the rounded word. For example they would choose the 20.0 and 20.22$ as stop lose and take profit. When the price reach to these psychological price levels, the price is reacted very fastly. The sellers and buyers try to push the market in a particular direction.
High volume
The volume is key component in the trading market on which, every trader should have focus because it is connected directly to the price of coin. When the price get change, volume get increase. The volume measure the volatility of the price of coin. It help to identify how volatile the coin is. The volume is very small in accumulation and distribution phase but while trending upward or downward and forming the higher highs and lower lows, the volume is high. While at time of retracement, volume is low. The volume is shown to us in form of small candles with small bodies at bottom of the chart.
When the candles are small, it mean that there is low volume. When the body of the candles get large, this imply that there is high volume.
Accumulation and Distribution Zones
The market basically have two trend which occur in the market because of the accumulation and distribution phase. The market is in accumulation phase when the price of coin is low after a long bearish trend. After a long downtrend, there is pause in price at very bottom level where price is very low. The big hands now start opening the buy orders to push market a bit upward and create the buy opportunity. This will produce the trend reversal signals. The small traders will buy the coins expecting the coin will rise up. The demand will increase and supply will start decrease. In the result, the coin will reach to the high level.
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The distribution phase occur after a long bullish trend. In the distribution phase price take a pause. This is the best spot to sell the coins. When the coin is in distribution phase, volume is low because of having the selling interest. When the people start selling the coin, the volume get high.
Question 4- How to correctly identify a Rebound and a Breakout
Whenever the price break the resistance and support, the trend reversal occur. The breakout of the support and resistance is very important price points for the traders. These point produce very useful trading signals. Traders can get the best entry and exit spots because of these trend reversal points. The resistance and support zone, both are the market exit areas because when price reach to these levels, it can reverse and trend can be change. Any pull down can break the support and any pull up move can break the resistance. So the traders should be very careful about the point when the trend would reverse.
The another important thing to put into consideration is the false breakout. This is always true that the trend reversal or support and resistance breakout will always be successful. For this, we need to check whether the breakout is true or not before taking any trading decisions.
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In the above screen short, we can see that the price broke the resistance level and move upward. Now the resistance level will be serve as the support level. Before breakout, price tested the resistance level for multiple time. But after occurrence of the breakout, the price come back to the support level which was the resistance level before the breakout. This is the the rebound because it confirm the breakout of the resistance level. This make it confirm that breakout is successful. Now we can place the buy order. We will wait price to rise a little bit and then we will place out buy order by setting the stop lose and take profit.
Question 5- What is the False Breakout
The false and successful are two type of breakout which occur in the crypto world. The breakout are very important spots for the traders to decide what move they should adopt next. If the support get breakout, the traders should sell the coins. If the resistance get broken, traders should buy the coins.
But it is no so easy. Identifying the valid and successful breakout is very important because in other case, the traders may lose all their capital. They may take the wrong decisions using the breakout strategy but when breakout not work, they face lose. We we should be very clear about false and successful breakouts.
The false breakouts are usually a manipulation of the big hands or we can say that they apparently create a breakout which misguide the other small traders. The false breakout is that after which, the price do not follow the direction of breakout but start moving in the opposite direction.
The crypto game is actually played by the big investors who change the directions to have their own gains. They get a profit rate and to hit that, they use the small traders. Their aim is to have their own profit. When price break the support or resistance level and instead of moving in direction of breakout, price start moving in opposite direction, the false breakout occur then. For example, after breakout of the resistance level, the uptrend is expected. But when the price start moving in opposite direction of breakout, i.e in downward direction, the false breakout occur
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Question 6
Explain your understanding of trend trading following the laws of supply and demand. Also, explain how to place entry and exit orders following the laws of supply and demand. (Use at least one of the methods explained.)(Screenshots are required.)
The crypto market is highly volatile and the price of the coin in exchange market keep changing. The coin move upward or downward time to time because of the change in demand and supply. The market trend change when the investors change their attitude toward market. When the market is in downtrend, the investors find it a good buy spot and enter into the market by buying the coins. The demand of the coin get high and supply decrease. The price of the coin start rising and the coin start trending upward. The bearish trend end and the bullish trend start into the market.
Similarly when the market is in uptrend, the price of coin is high. The investors find it a good exit spots and start selling the coins to earn profit. The selling pressure get high in market as compare to the buying pressure, the demand get decrease, the supply increase because of which the There are two trend basically in the market. When the price of the coin is high, the people get the advantage of this uptrend and sell their coin. The demand decrease and supply increase. Because of which the price fall and downtrend occur. So the trend keep changing from bearish to bullish or bullish to bearish.
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How to place entries and exit orders following the laws of Supply and Demand
- Final retracement following Elliot waves(a, b, c).
To apply this strategy, the market trend should be at its end. This can be apply only when current trend is almost end and new trend is going to start. Then we will drawn the corrective waves of elliot theory which will confirm the end of the last season and beginning of new trend.
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For this strategy to be application, Wave a should have high volume as compare to B. Both are the impulsive waves while wave B is retracement wave. Now we will make an entery at break of A by setting the stop lose below the low of A and take profit.
- Pullback Entry
While trending downward or upward direction, the price have some zigg zagg moves. The price do have the higher highs and high lows while moving upward where each high will be higher than previous high. To place the order, we will wait for the pullback move. Then will check the candle with high volume and then by setting the stop lose and take profit, we will execute out order.
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- Entry After Market Trap
The false breakout are the trap of the big hands for the small investors. But we can even get benefit by playing smartly. When we see that the breakout occur in the market, now a trend reversal is expected. The below coin was at the bullish trend. There was the ranging zone where the price was bouncing within a specific range. Then price broke the resistance by making a small candle but then again coin start moving downward
The wick was the trap by the big hands to mislead the small traders. Now we should have the knowledge that now the coin will decrease. We should place the sell order right after the wick body appeared because after that, a downtrend will occur. We will set the stop lose and take profit and then execute the order.
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We saw that the coin started decreasing after that, so we should understand the big hands moves so that we can get the high profit.
Question 7. Open a live trade where you use at least one of the methods explained in the class. (Screenshots of the verified account are required.)
I am going to perform the trading of TRX/USDT using my binance.
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In the above screen short, we can see that there is the uptrend in the market. Price is rising upward while creating the higher high and higher low moves where each high is higher than previous high. We will apply here the pull back technique by considering the demand and supply rule here. The demand is increasing after the retracement. Coin is again rising. Now we check the volume, the volume is rising at time of rising up. This confirm the bullish trend. This make it sure that there is uptrend and coin is rising up.
After confirmation of continuous of the bullish trend, now we will place the order. When the impulsive goes above the last higher high, we will place out buy order by setting the stop lose and take profit.
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Conclusion
Chart is the graphical representation of the market data. The price of the coin with respect to time is shown on the chart. The chart is very effective and easy way to analyze the market. One can easily predict the market future by using the past and present price data. The Candlestick chart is a technical tool which was developed by the Japanese farmer in 1990 which has become a most important and popular tool to analyze the market. This is the best and easy way to analyze the market.
The traders can predict the market future easily using this tool. Whenever the price break the resistance and support, the trend reversal occur. The breakout of the support and resistance is very important price points for the traders. These point produce very useful trading signals. Traders can get the best entry and exit spots because of these trend reversal points.
Note: all the pics are taken by me from the tradingview.com and binance.com