Perfect Entry Strategy using Stochastic Oscillator + 200 Simple Moving Average - Crypto Academy / S5W3 - Homework post for @ lenonmc21
The importance of doing your own research as a trader cannot be overemphasized, one of the tools used are technical indicators.
Having read the lecture on the above topic, this is my entry for this class.
THEORY
1 Say in your own words what you understand about the perfect entry strategy
INTRODUCTION
Image designed on Pixellab
The cryptocurrency market as we know it is one that is very much volatile, price changes from high values to low values.
As a trader you have to be very careful when investing in a crypto asset. One of the strategies that aid traders to make proper trading decisions is the use and study of market price and how it varies alongside technical indicators.
There are many strategies employed by different traders and over time they have come to trust those strategies. One of such strategies is what is called a Perfect Entry Strategy.
As the name implies the Perfect entry strategy, is a strategy employed to know when to make entry into a market so as to maximize it's advantage as a trader.
This strategy is employed alongside the indicators Stochastic Oscillator as well as the 200 Simple Moving average.
Using the Perfect entry strategy, traders looks for signs that indicates a trend in the price pattern is about to reverse and so they can make their entry into the market.
The Stochiastic Oscillator is an indicator that follows the price pattern of the market, when it is at the top there is likelihood of having a Bearish trend pattern in the price while at the bottom we expect to see a Bullish trend pattern in the price.
Studying this patterns traders can make entry at the perfect time and take profit, hence why it is called a Perfect Entry Strategy.
It has always been advised that as a trader studying only the trend patterns of price do not serve as a very good source of analysis for market, and as such they should be done using alongside technical indicators to get better analysis and judgement.
Using the Perfect Entry Strategy alongside the Stochastic Oscillator and the 200 Simple Moving Average
We have already established that just Understanding the pattern of the trends alone is not enough so we'll be using it with other technical indicator.
There are number of factors that have to be in place before we can have a perfect entry into the market.
First Factor
Firstly the trend of the market has to be determine. This is done by studying the trend which the pattern of the market price is following whether it is a Bullish trend or a bearish trend.
For the Bullish trend we see the price forming higher highs and higher lows meaning that the new highs are higher then the previous one, the new lows are also higher than the previous one.
While for the Bearish trend the price forms lower lows and lower highs meaning the new lows are lower than the predecessor, and the new highs are lower than its previous one
Second Factor
Knowing the trend we use it alongside the 200 simple moving average, the trend is monitored for when it is close to the 200 Simple Moving Average. Then a candlestick which is small and called trigger is looked for to determine whether we can make entry.
Third factor
The final stage is using with the Stochastic Oscillator which also follows the price pattern.
For when the trend is bullish and we have found a candle which is small and is close to the 200 moving average, we can see that there is no strength to drive it downward.
Then the Stochastic Oscillator must be between 0 and 20 to be in accordance for perfect entry.
But if reverse is the case which is a Bearish trend, then the Stochastic Oscillator must be between 80 and 100 for there to be conformity for perfect entry.
All conditions for the three different stages must be in harmony for there to be a perfect entry, when one of them is not in accordance with the rest then the trader will have to wait for when the conditions have been satisfied.
2 Explain in your own words what candlestick pattern we should expect to execute a market entry using the perfect Entry strategy.
To execute a perfect entry strategy, this can be done for two instances which are when the trend pattern of the candlestick is in a bullish trend or a bearish trend.
Entry is not made when the pattern is in a ranging phase.
A bullish trend is an upward movement of the price, to make profit we would be looking for a reversal to make our entry as long as all three conditions have been met.
The candlestick pattern will be a formation of higher highs and formation of higher lows.
To make entry we will be looking for a small candle close to or at the 200 simple moving average, then the Stochastic Oscillator has to be between 0 and 20 frame.
Having known all three conditions, if this is fulfilled, entry can be made for a sell as the bullish movement will turn to a bearish one.
For when the market price is bearish or the pattern is in a downward movement.
The candlestick pattern will be formation of lower highs and lower lows.
To make entry for this we look for a small candle close to or at the 200 simple moving average, the indicator for the Stochastic Oscillator has to be above 80.
If this condition is fulfilled then we make a buy entry, expecting an uptrend or a bullish trend.
As mentioned earlier entry is not made unless the candlestick pattern forms a bullish or bearish trend. Ranging phase entry is not a perfect entry.
3 Explain the trading entry and exit criteria for buy and sell positions in any cryptocurrency of your choice
To make entry there are a number of criteria which must be followed for either an entry or an exit in buy and sell position.
Criteria for Buy Entry and Exit
To make a buy position these factors must be in place.
• Buy position is for an uptrend, so market must form a Bullish trend from a bearish trend.
• This trend information is used alongside the 200 Simple Moving Average line, we check how close it is to the trend pattern.
• The trigger candlestick has to be spotted to confirm that a reversal is about to take place.
• The technical indicator which is the Stochastic Oscillator is checked to see if range is between 0 and 20 which is called oversold.
• Stop loss point is placed
Criteria for Sell Entry and Exit
To make a sell position the following must be in place
• Sell position is for a downtrend, so market must form a Bearish pattern from a bullish.
• This trend Information is used with 200 Simple Moving Average line, we check to see it's closeness to trend pattern.
• The small candlestick or trigger candle is spotted to confirm the reversal.
• Then indicator value from Stochastic Oscillator has to be between 80 and 100 which is overbought.
• Stop loss point is placed.
PRACTICE
Trade 2 demo account trades using the “Perfect Entry” strategy for both a “Bullish” and “Bearish” scenarios.
I understood the application of the perfect Entry strategy but i couldn't find the exact indicators used because there were alot of them with similar names.
The closest I found didn't give me the results according to the lecture which is why I couldn't do the demo trading.
Where the conditions are satisfied, perfect entry results according to the class was not formed hence I believe my indicators are not the same as that used in the class
CONCLUSION
Understanding of the market trends can be used alongside a lot of different technical indicators to make good trading decisions.
I wished I was able to do the practice question to verify my understanding of the lecture.
I look forward to your review of my work professor @lenonmc21