Basics to trade cryptocurrencies correctly. | Part 1- Crypto Academy / S6W1 - Homework post for nane15
Hi steemians, welcome to my task for professor @nane15 for this first week course. This will be about the introductory course of trading and how it is done in the sense of the market and the factors of real life affecting trading activities. This teaches on how to handle your emotions in order to top the trading field. Let’s get to it.
The idea of trading dates as far back as existence and has been a means of making profits by different individuals in different markets. This simply involves the transfer of goods from one person to the other or from an entity to another. This mostly takes place in a market place which in real life can be a platform or a certain area designated for such activities.
Therefore we can say that trading is the buying and selling of goods and goods or services with the sole aim of making profits. The profits from assets come from their market value and this value differs from asset to asset. For example we can look at BTC which has a very high market value compared to the other alternative coins in the crypto markets. This may seem simple but there’s more to it than just selling valued assets for profit making.
Assets gain and loss value depending on the demand and supply chain of an asset. A high demand of an asset will yield an increase in its value and the reverse is true. This rule of the market makes assets to be in constant changing value hence giving opportunities to traders.
The market volatility of an asset simply gives an idea of how traders handle that asset and the liquidity of that asset is what can be used as a scale of measurement on how fast such assets can be sold. The capitalization and liquidity of an asset is what attracts traders to it.
Like I said above, trading is based on buying and selling of assets with the sole aim of making profits. It’s known that traders buy low and sell high in order to live in profits during their stay in the market. With the availability of liquidity, this process can go on and on. Even when traders sell an asset they come to buy that asset in the future at lower prices or even higher prices but with the idea that it shall go higher than their buying price.
I’m carrying out the buy low and sell high market system. It should be known that in the market there are big investors in different projects and when they do the same activity, it drastically affects the market price. With the knowledge of such manipulation, it’s not enough to just want to buy low and sell high because one has to be wise in the market and follow the big investors (whales) in whatever direction they go in the market.
Sonim understand the market system one has to do some analysis before buying an asset because a low asset price can become its high and a high asset price can become its low such that the trade needs to know the real low or high value in the market at every given time. This can only be done by analyzing the market. Market analysis can be done fundamentally, technically, and sentimentally. I will describe these below.
This is trading analysis done by analyzing price charts of the asset of interest to understand price action. This is done with the understanding that price movements in the financial markets repeat with time and when analysed properly one can unravel the next move of the asset in short term-medium term-and long term. This is done by the utilization of patterns in the price charts and some indicator tools that have been developed over time.
This is analysis based on studying microeconomics of an asset to better understand the real life activities that affect its price over time. Man by nature is controlled by emotions and the financial markets are being traded by humans. This means over time there shall be a circle of occurrence of behavior of man to noise or other people’s opinion on how to get in and out of the market. So studying this will give a trader an edge over other traders in the market provided the trader doesn’t allow the crowd thinking to take over their decision.
This is trading analysis based on what people hear from the outside by those they trust about the market. This goes to actively buying assets because of news from influential individuals. A typical example is when the CEO of Tesla tweets about Dogecoin and the next thing is that traders dive into buying the asset which leads to an increase in the market value due to high demand. When traders act accordingly with news from such channels, it’s considered that they are actively carrying out sentimental analysis.
A combination of these analysis techniques will yield a trader enough to go profitable in the market. At one point it’s also good to focus on one of these techniques and better grab good knowledge from it and become perfect and profitable in the market.
In the financial markets there are the whales and the small scale traders. These two guys trade against each other most of the time but the small scale trader of wise enough will follow the whales in their trading activities. In this way the small scale trader will avoid being liquidated all the time and stay in profits. The big investors otherwise called the strong hands have some level of control over the prices of an asset in the market since they hold a significant amount of the asset. When such traders take profit the market feels the impact especially the small scale traders (weak hands). I will further describe these two categories of traders below.
These are the big investors in the market such as companies, banks, ventures, big trading firms and even big organizations. They own a greater part of the market and dominate the market such that a buy or sell from the will affect the whole market price. They higher professional traders to carry out their trading activities and due to the high capital they have on the market they can manipulate it to milk profits from the market at a given point in time. The strong hands buy and sell assets in different ways but in very large quantities. The buying and selling process they apply is a means of manipulating the market such that they can liquidate it and make profits.
The easy way to buy with these strong hands is to have a certain amount they want to buy an asset and they make it in such a way that they buy gradually so that the market trend is not pushed. In this unnoticeable way of buying, they take their position in the market. When their buying stage has been achieved, they commence the next stage of their manipulation of the market prices. Like I said, the market most at times is influenced by emotions and there is where the manipulation comes in.
The next thing the strong hands do is to pressure the market by pumping in huge amounts of capital into the market such that it induces an uptrend. When the market starts a pump, small scale traders or even some strong hands can fall into this trap and buy from the market too so that they don’t miss the bull run. At this point the market can experience an impulsive bull run and many will fall prey to this effect.
Once the market is at its peak, the strong hands begin to remove their capital from the market gradually in a manner that will not affect the trend easily. They do this every time the price reduces a bit and once they have liquidated the market and made massive profits from it. When this happens, the downside movement begins because most traders bought at apparently higher prices and as such they feel bad cashing out thinking it shall rise again. As this goes on some people get frustrated and sell off why taking the market even lower.
These are the group of traders with small capital such that upon buying and selling as individual traders it will not affect the market price drastically unless done in a group at once. This includes traders of all kinds, that is from the level of retail investors to amateurs of the financial market. The liquidation done by the strong hands affects this category of traders. Since they don’t have influence over the market they are always not confident and scared of being manipulated by strong hands while ending up in manipulation. They buy and sell pretty soon. This class of traders has a majority not holding for long term.
I think it’s better to think like a pro all the time while you stay in the market. This will yield you more profits than when you follow the herd with the noise that comes. The pack always follows the trend in the outside thinking information fished out to traders by fellow traders is of good fate all the time. I’m the cryptocurrency market one man has to gain and the other loses..
It’s funny when people watch YouTube videos and get news from so called influential crypto experts about coin pump or dump and they fall into such traps. It’s wise to always have the mindset that the news dished out is meant to confuse the public and it’s a strategy used by the strong hand investors to manipulate the weak.
The media today is an added advantage to the strong hands as they can influence the public through it. Platforms such as Reddit and Twitter stand to be the most prominent platforms that are used for both good and bad information when it comes to market manipulation. Thinking like a pro makes you see beyond the news and makes you read between the lines to understand the essence of every information reaching you.
A typical example is when the bull run is almost to the end and the news makes it look like it’s just getting started and as such, many people venture into buying from that high price just to end up in liquidation. When BTC was gradually moving in its bull run until it reached it ATH, the rumors of its bull run were minimal until during the last days when the news of BTC to $100k was all around the market. Many bought at that price thinking that the speculations will come to pass just in the next few days. This is how the market is continuously being manipulated and the herd all throw in and end up in liquidation. Thinking like a herd makes you go cry when everyone is crying and laugh when everyone is laughing and normally one can not be profitable in the market with such an idea.
The moment a trader stops following the herd, threats when that trader leaves the emotion Ben he and become a pro in the business of trading cryptocurrency. It’s normal for the market to go one direction at a time and that has been the way of the market. When you look at it critically you’ll see that there comes moments when there’s a certain hard retracement which liquidates many traders and later the initial trend steps in and continues its course. That’s a simple play of liquidity injection by the whales in the market. The whales are always right, same as the market and what you need is to think like a pro and the market shall always bring opportunities to you. Not following the herd is the beginning of a good trading journey.
To avoid such liquidity injections like the one I explain above, you have to think like a pro and take positions that are not too large, read the minds of the strong hands and your trading life will be that of a pro trader.
Trend trading refers to trading a cryptocurrency based on the current trend of that asset. Therefore if it’s a pattern repeating itself you just follow and flow with it. Trading in a trend gives you an edge over the market as you can quickly identify trend reversals and switch lanes in the market for profitable position entries. I will carry out some trend trading analysis to show how this works. This will be described into three market structures: a bullish market structure, bearish market structure, and ranging market structure.
The bullish trend trading is that which traders carry out when the market is in a bull run or the bear run is exhausted and a possible bullish reversal is seen to occur. This can be easily analyzed by drawing a trend line on the price chart such that it touches at least three lows. Unless this trend line is broken, the market will remain in an uptrend. Therefore the market remains in an uptrend when it keeps on making higher lows and higher highs. This has been described on the screenshot below where I’ve identified all these characters of an uptrend.
To trade the bearish trend one has to observe the price chart making sure that it satisfies the rules of a bearish market structure. There should be a series of lower lows and low highs in the market such that a trend line can be drawn to link at least three lower highs forming a trend line. When the price bounces on this trend line we can make an entry. Entry can also be made if we notice a bullish trend experiencing a trend reversal such that a new bearish trend forms. In these two cases we can do a bearish trend trade. This can be seen properly on the screenshots below where we have a bearish trend trade opportunity.
This type of market occurs when the price trades in an interval forming support and resistance levels. This type can be traded by making a long entry when price hits the support and taking profits at the resistance level and/or making short entry at the resistance level and taking profits at the support levels.
To understand the first and last impulse in a trend we have to look for trend pattern strategies that give us good information about the beginning of trends and the ending of trends. A typical example of the Elliot wave theory which says that a trend is made up of 05 waves on the impulsive side and 03 correctional waves on the correction side.
Looking at the first 05 waves we can confirm the market trend and wait for the 03 correctional waves to surface. The first 05 waves have rules assigning them in order.
Rule 1: The 2nd wave should be above the first wave.
Rule 2: The 3rd wave should appear as the longest wave on the trend
Rule 3: No wave number should meet the beginning and of wave number 01
The first impulse wave can be identified when the last wave of the first five waves are seen. After the number 05 wave has been identified, the corrective waves begin. When the corrective waves start forming, the second and third corrective waves being the c, and b waves will probably have higher peaks than the previous wave number 05 of the impulsive move. The first corrective wave should be smaller than wave number 05 and when it forms with a lower peak we wait for b, and c to form and when they have higher peaks we know that we have a new trend forming. Therefore the first smaller peak wave after wave number 05 becomes the first wave for the correction side.
To identify the last impulse of a trend we still use the Elliott wave theory. We look from the first wave and through the trend until the fifth wave and start to count the correction waves to the end. So by the last of the three correction waves we now close all open positions we placed during the first impulse.
To identify entry points using the Elliott wave theory is simply by recognizing the first impulse and also recognizing the correction waves when they come. Knowing these will give you the ability to make entry and exit the market at good points. To To Toopen a new position we can wait for the last correction wave to form a lower low such that the price trades and return to the previous trend and breaks the peak of the last correction wave. So we can just draw a line at the peak of the last correction wave and the line should act as a resistance such that when broken we can make our entry.. So we can just draw a line at the peak of the last correction wave and the line should act as a resistance such that when broken we can make our entry.
The position size will depend on the trader but its advisable to set a Stop Loss just below the last correctional wave and the take profit will depend on the risk reward ratio of the trade users. This can be used as a good exit criteria of the Elliott waves theory when the trading market tends.
For a sell trade, we stick to the Elliott wave theory such that it becomes completely the opposite of the bullish buy market. Here we’ll make an entry when the first impulsive wave gives way and then exit the open position when we see that the last impulsive wave has formed. On the other hand we can still open a position when the last correction wave peak is broken downward giving way for new wave impulse to form.
There are different techniques we can use to achieve trading in a trend like I did in the other section. The key is to identify a trend and draw the trend line or the Elliott waves then look for breakout to make entries.
The relationship between the Elliott wave theory and the wyckloff method of analysis is that they are both used to identify good entry points and also determine the way to exit the market in case the trade goes north or south. These two methods are capable of unraveling the first impulse wave and the last correctional wave such that the trader can take turns in trading the market as these aspects are continuously being met.
When both waves are identified progressively, a trader can make perfect entry and exit from the market at satisfactory profits rates such that the traders stay in the market and can be made profitable.
The Elliott wave theory must not appear perfect because on the charts things can be somehow complex as seen on the examples above. Making sure all the aspects and rules behind the Elliott wave theory are met by making an entry. Notwithstanding, one has to take some considerations from the other aspects of trading and aspects that affect the market price of an asset. Finding the wave patterns can be quite difficult sometimes but when frequently carried out on analysis it becomes easy to do.
I’m conclusion, I can say that trading is a profession of emotions and those few traders who can fight against their emotions will always get the best from the markets at all times. In the financial markets there are always big investors (strong hands) who can readily manipulate the market such that small investors (weak hands) will be liquidated in the course of the big investors taking profits from the market. The best way to play by the market is to follow the whales and milk the market whenever they milk it and in this way you can’t get liquidation all the time.
The market moves in one direction at a time and to trade the market will require that you trade a particular trend at a time. A good analytical method for carrying out this activity is to apply the Elliott wave theory to get the first of five impulsive waves and also to identify the last correctional wave. The lesson is quite broad and thanks to my professor I was able to understand.
Thanks for reading and Steem on.