Hello great minds, i want to thank Professor @nane15 for this wonderful lecture delivered. I will be submitting the solution to my assignment below:
1.What do you understand by trading? Explain your understanding in your own words.
Trading in simple terms means the process of buying and selling (in this case buying and selling of cryptocurrencies). Trading can be done in exchange for money or any other commodity (trade-by-barter) as far as the commodity is accepted by both the seller and buyer to be used as a medium of exchange.
Trading is mostly done in a market place but it can be done anywhere really as far as the asset’s market value has been agreed upon by both the buyer and the seller. The basic aim of trading is to make profit, the seller tries to sell the cryptocurrency at a price higher than he bought and the buyer tries to buy at dip price so as to maximize profit.
When trading it is advisable to trade cryptocurrencies that has high level of liquidity and capitalization.
2.What are the strong and weak hands in the market? Be graphic and provide a full explanation.
Strong hands in the market simply refers to the whale investors, companies, banks etc that has a lot of capital and can dominate the market in a great way.
These strong hands can not buy or sell cryptocurrencies without influencing the price violently (either by rising it or lowering it). These strong hands acquire large quantity of an asset by two methods known as; Accumulation and Distribution.
In the accumulation stage, the whale investor, banks, companies (strong hands) begin to heap up in a mass the asset this is done by placing orders of purchase little by little each time they (strong hands) notice the price of the asset has dip. After accumulating his desired quantity, he begins to buy the asset until the supply disappears there by putting massive pressure on the market when supply disappear and uptrend will begin.
Once the whale investor notices that the price has rise he begins to sell little by little mostly like the same manner he acquired the asset, the sale will go on until he sells all and make his profit, this stage is the distribution stage.
The weak hands on the other hand are the small investors who have little capital in the market and they do not affect the price of the asset. These small investors are often preyed upon by the strong hands by buying their assets at a low price and selling it back to them at an exorbitant rate.
When the weak hands see the price of their asset dropping and dipping, they begin panicking thinking it will continue dipping and then they sell to the strong hands. When the price gets high, and the strong hand starts distributing their asset, the weak hands begin buying the assets back thinking it will keep rising. After the rush in demand for the asset is finished, the price of the asset will dip making the weak hands lose money.
3.Which do you think is the better idea: think like the pack or like a pro?
As a crypto enthusiast, I prefer to think like a pro rather than thinking or following the pack because a Pro is a strong hand in the crptocurrency market and the aim of every strong hand is to make profit so when I think like this, I will know when and where the price will be low for me to place order and accumulate the asset and wait when the price increases for me to take profit.
While thinking like the pack is trading with emotions and sentiments from watching or following news from crypto influencers on twitter, facebook, youtube etc. the pack often times cannot even comprehend the way the market will move, these group of people do not follow the market trend but are controlled by emotions and news.
4.Demonstrate your understanding of trend trading. (Use cryptocurrency chart screenshots.)
Trend trading can be said to be a method of gaining profit from analyzing the movement of an asset through it momentum in one particular direction. I most time try to make profit from following trends. Trend is also a primary concept of technical analysis, it can also be known as the directional movement of an asset price.
It can be divided into three categories i). Uptrend ii). Downtrend iii). Sideways Trend
Uptrend: this is when the direction in movement makes higher high and higher lows. A peak higher than the previous peak is known as “higher high”. And the bottom higher than the previous peak is called “higher low”). Uptrend often last a week it is advisable to buy asset that prices are low during this uptrend.
Downtrend: is when the direction in movement makes lower high and lower low. When the current bottom of a cryptocurrency is higher than the previous bottom it is known as lower high and also when the current bottom is lower than the previous bottom it is called lower low. Downtrend can also last for a few weeks it all depends on the source and duration of the driving factors.
Sideways Trend: in this trend, demand and supply are almost equal, thereby causing the price of the asset/cryptocurrency to have an horizontal movement. At this point we can say that the market is ranging.
According to the lecture, the three rules for the first five waves are:
Screenshot from trading view
In a bullish market, wave 2 cannot fall below wave 1. Wave 3 should be the longest. While wave 4 should not meet the peek of wave 1.
5.Show how to identify the first and last impulse waves in a trend, plus explain the importance of this. (Use cryptocurrency chart screenshots)
Screenshot from trading view
When you look at the chart above, you will notice that at wave 5, the trend was now weak. What you should be looking for as a trader is the corrective wave at point B and C as this will formed a new higher high compared to the previous high. This trace can be seen at poin 5 and A where previous bearish trend can be seen. As a good trader, once you see point C going higher than point B, just know that this is the very beginning of a new up trend and this is the first impulse.
Now we have to take to account the Elliott wave theory, for we to fine our wave 5, we need to go to the apex of the trend. At this point we are looking for the last 3 corrective waves which represent the last impulse. At this point it is advisable to close all open position and get out of the market. However, you can see this in the chart below.
Screenshot from trading view
6.Show how to identify a good point to set a buy and sell order. (Use cryptocurrency chart screenshots)
Screenshot from trading view
For we to open a buy order, we can seen the first impulse which represent an important level and serve as a resistance for the previous downtrend, immediately the break of the point, it became a support level. This is the point where a buy order can be opened but you must allowed it to move a little higher than that first impulse level that serve as support.
We need to take to account the stop loss and take profit. Stop loss is an exit order set to below the open order in case of a buy trade and the stop loss is placed a little below the support line. While the take profit is place above the buy at the previous resistance.
To make a sell trade, you have to take not of your last impulse then allow the market to come to you. The best point to enter the market is when there is a retrace back up to the break of the structure, you can open your sell order and take profit at the first resistance level as seen in the chart below.
Screenshot from trading view
7.Explain the relationship of Elliott Wave Theory with the explained method. Be graphic when explaining.
Elliott wave can be very sensitive or difficult to execute trade upon. This is because some times the market may not respect the 5 waves. It be difficult for beginners to make use of this 5 waves in executing their trade, due to sometimes the market movement will be too long so we can not define the move again. The only thing to do as a trader, please always participate in a high liquidity market as this will help you a lot in making profit in the market.
Excellent pattern can be rare in the market so do not look for it.
We can see that learning the 5 waves of Elliot has made us to become familiar and having the full knowledge of how it works by identifying the first impulse for entering and the last impulse for exit.
Thank you very much for your time