Greetings to all the students of Steemit Crypto Academy and to Prof. @lenonmc21. It is with great pleasure that I submit my homework post for Season 5 Week 3 post to be graded. I believe going through this lesson, my knowledge about Trading, cryptocurrencies, and Blockchain will never be the same again.
In this lesson, Prof. @lenonmc21 thought about trading using the Perfect Entry Strategy. He said for a trader to use this strategy successfully, he/she has to understand the market structure and cycles that can occur in a trend. This is because knowing them will help the trader to capitalize on the market situation and it will also provide a proper way to use the Stochastic Oscillator and the 200 Simple Moving Average Technical Analysis Indicators. With these, the trader will have the privilege of making a Perfect Entry when the market situation reverses.
In testing my knowledge of the subject matter, I am expected to provide answers to the following questions. Follow me along to assess my knowledgeability on the subject matter.
1. Say in your own words what you understand about the Perfect Entry Strategy (Put at least 2 examples on crypto assets)?
The Perfect Entry Strategy is simply a reinterpretation of the market using the market price and trend-cycle together with technical analysis indicators such as Stochastic Oscillator and 200 Simple Moving Average to determine the direction of the market in other to make a perfect buying or selling entrance.
The Stochastic Oscillator is very sensitive to a change in the direction of the market, and it shows traders the overbought (80-100) and oversold (0-20) regions of the market. When combined with the 200 simple moving average (200 SMA), the trader stands a better chance of finding a perfect entry point when trading. This is because, unlike the trend, the 200 SMA serves as a support and resistance line.
As noted in the class lecture notes, in other to make a perfect entry, the trader needs to:
Determine the Market Trend. In other to determine the trend of the market, knowledge of trendlines, price action, and technical indicators is highly appreciated. For example, trendlines will point to the trending direction, but technical indicators such as the stochastic oscillator and the 200 simple moving average will determine the point of a trend that a trader can enter the market to buy or sell.
To determine the market trend using trendlines is a laudable but non-yielding initiative. Trendlines connect higher points (Uptrend) and lower points (Downtrend) in the market. An uptrend or bullish market presents traders with buying opportunities because price actions are supported upward. A bearish market presents selling opportunities because price actions are resisted in the market, pulling the market trend downward.
To make a perfect entry using trend, the trader needs to pay close attention to observe where the trend gets into a confluence with the 200 SMA. See the example below.
Merging of Japanese Candle Sticks and the 200 Simple Moving Average. When candlestick merges with the 200 simple moving average, it presents traders with great opportunities to enter the market. So it is a wise thing for traders to always look out for this before entering the market. In this case, when prices approach the 200 simple moving average, the triggering candle will be a Doji either indicating a morning star or an evening star. When this is observed in the market, it means the prices have no intention of continuing, there is definitely going to be a reversal.
Use Stochastic Oscillator. The Stochastic Oscillator shows the overbought (80-100) and the oversold (0-20) regions of the market price and is very sensitive to market reversals. It detects the relatedness of the closing price and changes in price over a determined period of time. Depending on the trader, it can determine days, weeks, and months.
When using this indicator to determine the perfect entry point, traders watch at the lines below or above and price action. When the price moves into the overbought region, the trader considers making sales. When it moves to the oversold region, the trader considers buying this is because the bulls will start pushing prices upward.
2. Explain in your own words what candlestick pattern we should expect to execute a market entry using the Perfect Entry Strategy.
Even after getting the market structure, price action, and technical indicators right in place, traders still have a challenge knowing exactly where and when to place a trade. In moments like this, they need to make good use of the candlestick pattern strategy in other to enter the market.
Among the many candlestick pattern strategy that does exist, two can be used to execute the perfect entry strategy.
Morning Star. It's usually formed when a downtrend record a series of black candles in a lower low. Then the market lowers on the next bar and fails to make a sell, then a little candle with the same opening and closing is formed. The Doji signals that prices are about to reverse. In this case, it is called the bullish abandoned baby. A green bullish candle on the other bar completes the pattern, indicating that prices will recover producing higher highs in an uptrend.
This provides traders with perfect entry opportunities.
Evening Star. Same as above, it signals a reversal in the market trend. The evening star is formed at the top of an uptrend, and it shows that the price direction is about to change. All the things noticed in the abandoned baby above are also seen here. The only difference is that the evening star occurs at the top of an uptrend and the first candle indicates the pattern is bullish and the third confirms it is bearish. This pattern signals that prices will form even further lower lows, presenting a perfect entry point
3. Explain the trading entry and exit criteria for buy and sell positions in any cryptocurrency of your choice (Share your own screenshots)
After determining the trend direction, I looked for the confluence of the price action and the 200 SMA, then confirmed my entry with the stochastic oscillator. This enabled me to make the following entries as seen in the screenshots below.
After confirming my entry points using the stochastic oscillator, I then set up my take profit with the 80 region range for a bearish reversal market, and my stop loss in the 20 regions, in case there's no reverse, I should not lose money.
Then I did the exact opposite with the bullish reversal.
4. Trade 2 demo account trades using the “Perfect Entry” strategy for both “Bullish” and “Bearish” scenarios. Please use a shorter period of time to execute your entries. Important you must run your entries in a demo account to be properly evaluated.
This was a very powerful class I enjoy all the parts of the class, there is so much practical incline. Thanks to Prof @lenonmc21.