Basics to Trade Cryptocurrency Correctly - Steemit Crypto Academy | S6W1 |- Homework Post for Professor @nane15
Hey everyone, it is great to be here this season and knowing that it is concerned about trading, makes me exited and willing to partake in all class for the season. Today's lesson focuses on trading cryptocurrency correctly and without no further ado, I will immediately begin with the assignment.
Trading
Trading is the exchange between to parties which is usually either a buying or selling of good, security, and assets. In the financial market, trading is the buying or selling of a security with the hope of getting a profitable result. Buyers buy to hold for increase while sellers sell with the aim that the price drops and they can buy again as they keep the profit. While trading local goods and services are done in the local market, trading financial assets and securities are done by brokers or exchanges who allow the traders to trade their choices where they long (when they want to buy into the market) and Short (when they want to sell their holdings).
Markets such as the stock,index, bond and Forex market trade from Monday to Friday and do not trade during holidays but the cryptocurrency market trades 24 hours and 7 days including holidays. Trading is simply a business of buying and selling but it requires principles, rules and discipline to pull through. Will Rogers said that "Trading is easy, Only buy what is going up, if they aren't going up, then don't buy them".
Trading and investing are very different, when it comes to investing, the investor looks at the fundamental analysis and intrinsic value of the asset to be invested in before investing. Investing could be a very long term thing where in most cases the investor sink with the ship when the asset go down the drain. Trading involves the use of technical analysis and study of the market to determine points of entry and exits. While trading can be very risky (especially when trading with leverage) but it is very profitable also compared to investing. Technical analysis involves the use of patterns, indicators, support and resistance point to trade.
Strong and Weak Hands in the Market
The financial market is made up of two types of players, the big player (large hedge funds, companies, and whales) and the small players (retail traders), with this, you should know which is a strong hand and which is a weak hand, for the sake of this post, I will tell you which is the weak hand and which is the strong hand, the weak hands are retail traders while the strong hands are the larger players.
Something happens a lot with retail traders and that is thinking that a trade is going to go in one way only for the market not to respond in that direction. Well, this could happen to anyone but it becomes very unfair when it is as a result of the strong hands taking advantage of the weak hands. There are lot of ways in which the strong hands do this but in general, they manipulate the market in their favor so as to liquidate the weak hands in the market.
The strong hands use the accumulation and distribution phase of the market to manipulate the market. During the accumulation period, the strong hands start to buy the market little by little, accumulating a lot of the asset to a point of satisfaction for the strong hands, once they are done with the accumulation of the assets, they start to put pressure and momentum on the buy order, thereby consuming the entire supply which would be set at different resistance level. when the market starts to go upwards, the weak hands join the trend thereby pushing it further at this point, the strong hands start to sell off their holdings for a profit gradually until he sells off all his holdings.
Think like the Pack or like the Pro?
Over the years being a crypto trader, one thing I have seen that really allow traders go bankrupt is trading based on what an influencer says or trading with signals from one person considered to be a person with large audience. One thing that needs to be clear to traders is that before an influencer would announce a trade, then they must've bought into it at a very low price are the market is already changing but they just need people to FOMO and start purchasing so they can grow their investment as well as sell off.
When the news is saying it is the best to buy into an asset, then that is the best time to get out of it.
FOMO, is relatively emotional because, the trader thinks that the market is going in the direction of the announcement and so start to buy into the market so as to enjoy a little profit. When retail traders who follow announcement start to FOMO and buy into the investment, the Big traders start to get out of the trade.
While a lot of traders cannot get first hand information and cannot predict what the Big players are doing with the market but one thing to do is to think like a pro instead of follow hear say. It is advisable to trade the patterns as well as buy low and sell high, with this, one will not trade with technical analysis and discipline rather than trading like the pack
Trade with the trend and not against the trend. As a trader, while observing support and resistance, it is important to trade trends. Trend defines the direction of a market and while the market can either be in an uptrend, downtrend or trading range (consolidation), it is important to trade in the direction of the trend. Traders are advised to buy in an uptrend, sell in a downtrend and stay out of the market in a trading range/consolidation.
To explain a trend better Elliot wave will be explained. Elliot Waves says that the market is in a repetitive pattern which is a result of emotion from the trader. This emotion causes impulse and correction thereby causing an uptrend and downtrend. The impulse rate determines the trend of the market and the correction is a movement in the market opposite to the impulse. Between the impulse and correction are retraces. The impulse have 5 moves, 1,3, and 5 are impulses, 2 and 4 are retraces. The retraces should not go below the impulse. After impulse 1 to 5, a correction A,B,and C occurs
Image
Wave 1 is the initial impulse wave, and wave 2 is the retrace. Wave 2 shouldn't retrace below the previous low of 1. Wave 3 impulse should go higher than wave 1 while wave 4 should not retrace below wave 3. Wave 5 should be the highest of all waves, after which a correction is expected.
The correction wave is the ABC wave, and the wave goes in opposite direction to the impulse wave. After a correction wave, a new impulse wave can begin.
Identify the first and last impulse waves in a trend, plus explain the importance of this. (Use cryptocurrency chart screenshots)
The first impulse wave occurs after a correction has been completed. When an impulse wave 5 is ended, a correction wave is formed where the price goes in opposite direction. The first impulse is important for traders as this is the point where early traders get into the trend. At this point when the early traders get in, they are able to harness the profit from the trend and avoid the manipulation which could occur by whales.
The last impulse is the 5 wave of the Elliot wave. It is the point where traders take profit as after the last wave, the price wouldn't reach a new high (according the uptrend Elliot wave)
Show how to identify a good point to set a buy and sell order. (Use cryptocurrency chart screenshots)
Buy Signal
To identify a good buy order in my chart, I will be picking a buy trade immediately after the 3rd wave goes above the 1st first waves high. Once the impulse breaks above the previous high of the 1st wave, it is a prove that the impulse is true and a buy signal can be triggered.
Sell Signal
To identify a sell order in the chart, i will be picking a sell order in the correction wave. I will be doing this at the C wave when it goes below the low peak of correction wave A.
Explain the relationship between Elliott Wave Theory with the explained method. Be graphic when explaining
Before the elliot wave, there is an accumulation period where price starts to build momentum before an impulse. At this point, large players are already buying into the market. and when the accumulation period is over, the 1st impulse wave shows up.
The Distribution phase is when the strong hands/players start to sell their entire holdings and this is regarded as the distribution period. The distribution period happens after the last impulse and it is a correction period
Conclusion
In conclusion, it will be good to state that trading is not a enterprise of guesses, it is a relationship of perception, following rules and reality. Trading without a proper analysis is not a good way to trade the market and remember that the market is not for gambling, instead it requires mastery. Instead of following the news from influencers to determine your trade, it is good to trade like a pro and not act like a member of the pack of crowd.
Thanks a lot for being a part of this post and I hope to see you in the future. Thanks to @nane15 for the class