Hey guys,
I welcome you'll to the 8th week of the SteemitCryptoAcademy course by Professor @nane15. In this course, I will run a comprehensive review on Basics to trade cryptocurrencies correctly.
All images used in this post unless otherwise stated are not mine and were extracted from coinmarketcap, for the purpose of this assignment.
Question 1
What do you understand by trading? Explain your understanding in your own words.
As complex as it could be, trading is reasonably easy to understand. Essentially, we are simply buying and selling what is known as digital assets. In a broader look, trading refers to the prediction of price movements through a CFD trading account or simply buy and selling the digital assets via an exchange platform.
CFDs are known as subordinates that allow you to predict the movement of the market without owning these digital assets. In the market, going LONG means predicting the market will go up (buying), while going SHORT means predicting the market will go down (selling).
This act of buying and selling can be measured through what is is known as leverages, i.e; your profit and loss will be calculated based on the magnitude of your position.
Generally speaking, trading is a basic concept that we all practice every day. How do we do this? Every day, you either step out to get ice cream or burger. You give the waiter money in exchange for food. This simple act is termed trading. It is the exchange of services or goods for money. You either buy or sell these goods to satisfy your need or make profit. In the crypto world, we buy assets when they are low and sell them when they are high or we sell assets at a higher price then sell at a lower price. It is that basic a concept. The image below shows candlesticks displaying price movements of Shib/TetherUS pair.
Let us consider the typical crypto market
Now the question is how does the market move? What influences price action?
One basic goal of anyone going into the market is making profit. And having that in mind, you’d ask yourself this, when do I buy? When do I sell?
These two questions are the biggest dilemma of most traders out there, especially the newbies.
The market majorly moves with respect to demand and supply. Although, as decentralized as the market is, they are usually not affected by the economic and political distress that affects the local currencies. However, the unpredictable nature of these digital assets has some factors which include:
Market Value: This is the worth of all the digital assets and how investors discern its advancements.
Supply; this is the total number of digital assets and the degree at which it is being released, impaired or misplaced.
Press: This is how the media sees the digital assets and how much attention it is getting.
Important Events: Major happenings regulatory updates, security issues and economic upsets can also have an effect on how the market moves.
All the above-mentioned concepts fall under what is termed as fundamental analysis.
Then we have what is called technical analysis. This is the ability to study and predict price action of digital assets in the market with the use of historical price chart and market figures. Technical analysis is attributed to the idea that if a trader can understand the past market sequence, they can use this to determine a pretty well accurate prediction of what the future market path will be.
However, as an individual looking to get into the market. These factors will play a huge role in making you understand the concept of what the market is all about. Getting too deep all at once could have negative effects. Let’s take it slowly as we digress to the next point.
Question Two
What are the strong and weak hands in the market? Be graphic as possible?
Many people have find difficulties in understanding price action and where the point of buying and selling lies. Bearing in mind that the first digital asset only came into existence a decade ago, it is remarkable to take into action how many various types of digital assets are now in the market.
It appears that each new day brings an additional band of companies and projects, all showing off a new digital asset they expect to transform the market field. As a trader, it might seem difficult to maintain awareness of all these digital assets.
In truth, the majority of these digital assets will not last for a long period of time after their creation. Some of them will fail due to the fact that the brains behind them do not have a concrete idea in order or a strong project backing. Others will decline because of the strong rivalry in the market, while others could also fall because the creators of the digital-only had the intention of getting wealth from their coins.
Getting into the market involves what digital asset you want to invest in, the brains behind it, and whether it has a good project backing. Since the inception of the market, some major players have surfaced and they have set up themselves as the major forces that drive the market.
Basically, these guys give the market lots of liquidity which most often times takes the little traders out of the market.
Volatility isn’t totally a negative effect on the market. Volatility allows users to have more substantial returns on their investments. These market movements make us arrive at the realization that there are two players in the digital market;
The strong hands: They are the most dominant forces in the market and they account for the larger percentage of the trading volume in the market. These investors' huge amount of capital easily influences the movement of the market. They are usually made up of banks, companies, or a group of people with huge capital.
During the accumulation phase of an asset, strong hands such as banks will buy or acquire assets when they are at a low price. Sadly, the psychological effect makes the weak hands to prematurely sell their assets. They eventually push the market upward to their advantage.
The weak hands: These are the retail traders who come to the market with less or little capital compared to that of the banks and organisations. One keynote about the market is that these retail or small traders have no effect on the market direction. As a little trader, you make decisions on your own and based on your own analysis. You seek for information, examine and place trades on these informations you’ve gathered. And there are about a million other traders out there placing these same trades in the same period but might go through a different process in making analysis and seeking information on the market. The certain point is, there are thousands of ‘big traders’ in the market that have huge influence on the market compared to a small trader.
Question Three
Which do you think is the better idea: think like the pack or like a pro
I will talk about why it is important not to think like the herd, although this seems like a good idea.
There are a lot of traders that use technical analysis and price charts as their main strategy of trading irrespective of the market they are trading. It’s a usual trend for traders to totally ignore the fundamental components and instead follow price action as well as consider different technical indicators.
However, trading on news releases can be immensely helpful to traders and can substantially enhance their trading strategy by including economic statements in their plainly charting method. One way to improve your ability to read the news is to accustom yourself to economic indicators, which are macroeconomics elements that have an influence on all financial markets. Some of these changes may involve changes in unemployment rates or retail income for a particular country, inflation, interest rates and all of this could play a vital role in the general condition of the market. This news and factors are often stated in economic announcements when advising investors of the current changes within the market. This news can have a high effect on market status especially if the information that was provided is not in line with what the traders anticipated.
Question Four
Demonstrate your understanding of trading trend (use cryptocurrency charts only)
Before in answer this question I need to give a brief highlight of what trends are. Trends are simply the overall or general direction in which the market is moving. This is the direction of the price either in a bullish or bearish direction. If you consider technical analysis, you could identify trends using technical tools such as trend lines. They could also be identified by highlights in the prices of different assets as they make higher swing highs for uptrends and lower swing lows for a downtrend.
Trend lines as I mentioned earlier are technical tools in the forms of lines that are used to determine or ascertain the direction of trends. Usually, you can draw trend lines at the extreme points of the trend. So if your trend line is slanted upward, the interpretation is that the market is moving bullish. If your trend line is moving downwards, it connotes that the market Is moving downward also known as bearish trends.
Furthermore, when you trade trends you are attempting to catch gains by analyzing the momentum of an asset in a specific direction. Simply put:
Uptrend
When you draw your trend line and see that your trend line is moving downwards, enter a sell trade or open a sell position. When trading an uptrend, the market price usually makes higher highs and higher lows. This accurate indicator of uptrends.
Downtrend
When you draw your trend line and see that your trend line is moving upwards, enter a buy trade or open a buy position.
When trading downtrends, the market usually makes lower highs and lower lows. The sell position when opened here will help you ride this trend effectively
Sideway Trend
**In the case of side trends, the market always exhibits a choppy movement. What I mean by this is that, the market usually has no definite direction of movement. The direction is always scattered, in upward and downward movements. **
Question Five
Show how to identify the first and last impulsive waves in a trend, plus explain the importance of this.
To identify the first waves in a trend, you can use trend lines using the Elliot wave principles
In the screenshot above, I identified my last Elliot waves 1-5 counts which usually precedes the genesis of an uptrend. I used my wave market a, b, and c which usually introduces the beginning of a new uptrend.
There are a few ways to identify the first wave in a trend as asked in the question. The method I employed was to count the first 5 waves from 1. After successfully doing this, the next thing I did was to draw trend lines to help me ascertain the accuracy. As indicated in the screenshot above, what I did was to mark the first complete uptrend in the Bitcoin/U.S Dollar pair. The price action on the left side I.e. the recent trend was choppy meaning that it was a sideway trend that ended and began an uptrend.
To identify the last waves in a trend
Just like we did earlier, we can also account for the last wave by counting the trends from 1-5 and checking the corrective waves which could also be 1,2 or 3 as the case may be This usually indicates the genesis of a downtrend meaning if you had an a position open, it would be best if you close it and open a new sell position.
Vitality of First Impulse And Last Impulse
Basically, traders trade to make profit and not lose. It means that the primary purpose of this action is to help traders understand the market which will automatically help them make decisions that will result to profitable trades. In essence, when you identify the first impulse correctly, you will be able to open buy orders and if you identify last impulses correctly, you will be able to make close orders.
This will principally make you more profit and less bad trades
Question Six
Show how to identify a good point to set a buy and sell order
As I have previously explained, when you identify your last impulse, the next thing to do is to open a buy order and when you find out your last impulse, set open your sell order.
As shown in the screenshot below, after counting waves 1-5 I identified my first pulse from a, b and c. With c being the perfect position to open a buy order
For the first impulse (buy order)
After a complete run of my Elliot wave 1-5, my a,b and c impulse are good indications of the beginning of an uptrend so I make open a buy order as shown in the screenshot above.
From the last waves in a trend (SELL ORDER)**
We can also account for the last wave by counting the trends from 1-5 and checking the corrective waves which could also be 1,2 or 3 as the case may be This usually indicates the genesis of a downtrend meaning if you had an a position open, it would be best if you close it and open a new sell positions.
Question Seven
Explain the relationship of Elliot wave theory with the explained method
Generally, there Is a relationship between the Elliot wave and the above mentioned methods including trend riding and trend formation. To buttress this point I would love to use the charts I used in explaining opening positions.
In the picture above, we can observe that there are 5 complete wave counts although they include fake outs that could make beginners open or close positions wrongly. There is presence of fake falls before the big bearish trend. One way this affects traders’ psychology is that we think that the trend will continue to be in bullish phase so we could buy assets and be shocked to see the market reverse against us. So much so, at the right hand side of the screen, fake bullish trends were seen which could also pull novices into the market thinking that the market is going in an uptrend direction.
In summary
Trades, trends and the Elliot waves are all interconnected. Elliot’s waves will help interpret trends more which will help you place more accurate trades which is eventually result to more profit for you
Conclusion
As I mentioned in the first part of the work, I explained that trading is simply the act of exchanging values. It involves the simple acts of buying and selling assets. Furthermore, trends help traders make proper decisions in opening buy or sell positions during trades with the Eliot 1-5 wave pattern being an accurate way to do
Generally, there Is a relationship between the Elliot wave and the above mentioned methods including trend riding and trend formation. To buttress this point I would love to use the charts I used in explaining opening positions.
In the picture above, we can observe that there are 5 complete wave counts although they include fake outs that could make beginners open or close positions wrongly. There is presence of fake falls before the big bearish trend. One way this affects traders’ psychology is that we think that the trend will continue to be in bullish phase so we could buy assets and be shocked to see the market reverse against us. So much so, at the right hand side of the screen, fake bullish trends were seen which could also pull novices into the market thinking that the market is going in an uptrend direction.
In summary
Trades, trends, and the Elliot waves are all interconnected. Elliot’s waves will help interpret trends more which will help you place more accurate trades which eventually result in more profit for you
😁Conclusion**
As I mentioned in the first part of the work, I explained that trading is simply the act of exchanging values. It involves the simple acts of buying and selling assets. Furthermore, trends help traders make proper decisions in opening buy or sell positions during trades with the Eliot 1-5 wave pattern being an accurate way to do
Special thanks to Professor Banny