Hello everyone. This is @ahmadchemist. I hope you all are great and enjoying this first week of the 6th season excitedly. Today, the professor @nane15 has delivered lecture which is all about the ' Basics of Trading Cryptocurrencies Correctly '. After reading the lecture and doing my own research on this topic, i am going to answer the question of this assignment. So let begin.
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Question 1. What do you understand by trading? Explain your understanding in your own words.
The concept of trading is not new for the world. The trading mean buying and selling the assets. The exchange of the thing is known as the trading. In crypto world, the traders perform the trading on daily base. multiple trading are been performed by the traders on different exchange platforms.
The trading in crypto market mean buying and selling the crypto coins. The traders can perform trade by buying the coin or selling their assets. They can buy the coin for any other coin which they have in their account. Trading is so easy and now multiple other facilities relating to the trading are being provided for the traders on the different exchange platforms. The most common and famous platforms are the Binance, pancake swap, huobi global and many others. These platforms allow the traders to buy and sell their assets .
The traders are allowed to perform trading from any where at any time. There is no limitation of time. The exchange platform enable the traders to buy and sell the coins 24/7. There are some simple steps to follow to perform trading. This has become now so easy but not that much simple because the traders cannot blindly buy and sell the assets but they have to consider some important factors like demand & Supply, price movements, market behavior, market trend, etc.
Trading may result in high profit but one should be expert in managing the risk because in case of having the risk, trader ,may lose all his assets. We should not invest by borrowing the funds because we cannot neglect the risk factor. Moreover, we should have full control on our emotions and sentiments while trading because the traders who trade with emotions usually get fail.
The trading is seem an easiest way to become the richest person of the world over a night but this is risky too. If there is margin of high profit, then also risk of losing big assets if market start moving in opposite direction. The prices of the coins move up and down. The prices fluctuate so we have to analyze some important factors in order to trade with profit.
The traders need to analyze the market first before making an entry in the market. The exchange platform enable the traders to analyze the market using different tools. The traders use the tools and analyze the market according to their own need. There are two ways to analyze the market.
- Technical Analysis
The technical analysis is done by using the charts, different tools, market structure, etc. This type of the analysis is done using the past prices of the asset. This type of analysis is perform by believing that the price of the coin fluctuate because the traders perform trading with the same attitude repeatedly. By repeating the same attitude, the market repeat itself. That's why the historical data is being use to perform the technical analysis.
The traders perform the technical analysis and predict the market future. Then they take the trading decision and close trade with profit. This type of the analysis is suitable for those traders who make the profit by price movement. The short term traders who buy and sell the coin and make profit from the price movement in the crypto market use the technical analysis to predict the market future.
- Fundamental Analysis
The Fundamental analysis is best for those who buy the coin, hold them for long term until the price of the coin rise up. When the price increase, they sell the coin and earn profit. For such type of the long term traders, the fundamental analysis is best to predict the market future. Different factors are being considered by the trading while performing the fundamental analysis for long term trading. Some among these factors are the market capitalization, project goals, etc.
2. What are the strong and weak hands in the market? Be graphic and provide a full explanation.
The traders perform trading to earn the profit. They buy the coin at low price and sell them when the trend reverse from bearish to bullish and price rise upward. But the traders should be well aware with the big traders moves because they can manipulate the traders and they may face lose.
- The strong hands
The strong hand traders are the big investors and the whales. These are the traders who perform the trading with large capital. There big investment effect the price and they can move the market in any direction. These are the big institutes or the powerful personality with huge capital. These whales or the strong hands invest the big volume of capital and can determine in which direction, the price should move.
They buy the large volume of the assets by the accumulation and distribution. They invest big amount and earn the high profit. In the accumulation phase, the strong hand investors buy the coin at very low price. They invest big amount of money because of which, price move upward. This upward movement of price deceive the small traders and they take it a good buy opportunity.
The price is already high so the small traders have to buy the coin at high price as compare to the price at which the big investors bought in accumulation phase. The price rise up and reach to the profit level set by the strong hands.
The strong hands then start selling their assets. They keep selling their assets at peak point of price and distribution phase occur. Still the traders are investing thinking that the price rise up. When the big investors sell their all assets in the distribution phase, the price decline very sharply and the small investors face big lose of money.
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- Weak hands
The small investors are known as the weak traders or weak hands. They invest small amount of capital. Their small investment do not effect the market price. They have little capital and trade to earn profit by the price movement. They cannot determine the market future but follow the market trend to earn the income.
This type of the investors buy the coin when price is low and then sell them when the price get high. The big hand take full advantage of the buy and sell of the small traders. When the small traders sell their coin at low price thinking that the price will decline more, the big investors buy those coins from them. Their investment again rise the price up and again the small investors consider it a good change to earn profit.
They again start buying the coin. The price rise up and the big hand again sell their coins to earn the high profit. Their selling make the price move downward because of which, the small investors face lose and then again they have to sell coin at low price.
Which do you think is the better idea: think like the pack or like a pro?
The traders should think like Pro instead of Pack. Pro are the whales who decide the market direction. So if the small traders start thinking like Pro, they will be able to understand the thinking style of the Whales. They will then move accordingly and will earn profit. By thinking like pro, they will be able to get the best entry and exit points.
The pack traders are those who blindly follow the market trend. They cannot decide the market moves. They perform trading by being emotional. They follow the other while the Pro are those who are followed by others. They decide the market future and market direction.
Demonstrate your understanding of trend trading. (Use cryptocurrency chart screenshots.)
When the traders enter into the market, they consider multiple factor. One among these factors is the Trend. The trend is actually the direction of the market. It can be bearish or bullish.
When the price is low, the traders enter into the market and buy the coins. The buying pressure increase because of which, the price move upward and bullish trend occur. In bullish trend, the price move upward while making the higher highs and high low. When the price fail to form another higher high higher than previous high, the downtrend occur.
When the price reach to high level, the seller start selling their assets. The selling pressure increase because of which, coin start moving downward while making the lower lows. Here each newly formed low is lower than previous low. This is known as the bearish trend.
When the market keep moving in ranging zone without moving in a particular direction, the market is said to be in sideway moves. At this time, price do not have clear direction. They keep moving between two points and thus the accumulation and the distribution phase are formed.
The Elliot wave theory is use to identify the market trend. This theory help to identify whether the market is trending upward or downward. By identifying this, the trader can find out the best entry and selling spots and can earn the profit. The Elliot Theory consist of two waves
- Corrective waves
- Impulsive Waves
- The corrective waves are formed after the impulsive waves and give us signals of the trend reversal. When these waves are formed, the trend is reversed and produce the best entry spots.
- The impulsive waves consist of the 5 waves among which 3 move in the market direction while 2 waves form the retracements. These wave help to identify the market trend.
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How to Identify the First and the Last Impulse Waves in a Trend
We have studied above about the Elliot Theory. This theory has two waves; Impulsive and corrective. For the Elliot wave to form, there are some points to be fulfill.
- The impulsive wave have 5 waves. The first, third and fifth should move in the trend direction while second and fourth should make the retracement.
- The second wave should not pull back to the low of wave 1
- low of the fourth wave should higher than the second low.
- The high of the third wave should higher than first wave and the high of fifth should higher than the third wave. This is like forming the higher high where each high is higher than previous high and each high low is high than previous high low.
- The third is the longest wave in the Elliot wave theory.
Now we have studied the Elliot wave thoroughly. Now let discuss how to identify the first and the Last impulse wave in a trend.
- First Impulse Waves
The First wave can be identified after formation of the corrective wave. The corrective wave form after the impulsive wave and consist of the three waves known as the wave a, wave b and wave c. These waves help to get the first impulse wave. The traders get the best entry and exit spots using the first impulse wave. If we focus on the below chart, we can see that there is bullish reversal. There was the bearish trend at first where the impulse waves are formed. The at the end of the impulse wave, the trend got reverse and the corrective waves were formed.
The wave a form a high and then again price pull back and a new lower low is form which is not lower than the previous low. Than again price rise up and a higher high is formed which is marked as the c. This high is higher than the high of a. Then price take a break and pull back. Then again a new low is formed. This identify the beginning of new trend. This point is known as the First wave. This is best point to buy the coin.
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- Last Impulse Waves
The last wave can be identified using the wave 5 of the impulsive wave. This is the last point of impulsive wave and after this, price fail to form a low lower than this low. After this point, the corrective waves are formed which identify the trend reversal. This is the Last Impulse wave point where the previous trend end and a new trend begin.
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How to Identify a Good Point to set Buy and Sell Order
- Buy Order
The Elliot Theory can be use to find out the best point to place the Buy order. The Impulse waves are formed indicating the bearish trend. There are five waves. The end wave is the 5 wave which is the resistance level. Then trend get reverse and price start moving in opposite direction. The corrective wave form.
After the corrective wave, the price take a break and pull back. This is the best buy position. This indicate the beginning of new trend. This indicate that the bearish trend has been end and now price has been enter into the bullish tried. So one should place the buy order at this point.
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- Sell Order
The Elliot Theory can be use to find out the best point to place the Buy order. The Impulse waves are formed indicating the bearish trend. There are five waves. The end wave is the 5 wave which is the resistance level. Then trend get reverse and price start moving in opposite direction. The corrective wave form.
Then the price take reverse and start moving down. While declining, when the price break the resistance. It goes lower than the lower of the wave five, this is best selling point. When the price break the resistance level while moving downward, we should exit from the market.
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Relationship Between Elliot Wave Theory and the explained method
In question two, we have discussed the Strong hand and weak hands. The strong hands control market and can determine the direction of the price. The weak hand get trapped and manipulated by the moves of the strong hands. The Elliot theory help to identify the distribution and the accumulation phase.
The accumulation phase can be identified using the Elliot wave. This is the phase which is identified before the first wave of the Elliot theory. After this phase, price start rising up. This is the point where the strong hands are opening their trades. This phase indicate the trend reversal. It indicate that in future, price will rise up. At the end of the accumulation phase, price enter into the bullish trend.
The Distribution phase is identified at the end of the impulsive waves. It is spotted at the corrective waves. This is the point where the strong hands are closing their trades. After this point, the price start declining. This phase indicate the trend reversal. It indicate that in future, price will decline. At the end of the accumulation phase, price enter into the bearish trend.
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Conclusion
Trading is not that simple. One must focus on multiple factors before making and investment. The traders should perform the proper market analysis before taking any trading decision. The retail traders should not follow the market rend blindly and should trade by being emotional and sentimental. The traders should control their emotions. The best way to perform trading is to think like the strong hands.
Traders should think like Pro instead of Pack. The trend identification is also an important factor which should be consider before performing the trade. The trend can be identified using multiple tools I have use the Elliot wave theory.
I am highly thank to the professor nane15
Nice post keep it up.
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