Basics to trade cryptocurrencies correctly. | Part 1- Crypto Academy / S6W1 - Homework post for nane15.

QUESTION 1

What do you understand by trading? Explain your understanding in your own words.

Trading is a very broad topic or subject that consist of different activities from a particular time to another with a specific aim of making profit.
In plain words trading is a strategic activity that involves the buying and selling of an asset with the primary aim of making profit. For better understanding I will use the following scenario;
I went to the market at 10 :30am upon arriving at the market I realized a lot of Television sets were put out for sale I decided to buy 5 at a price of $100 each making a total of $500. I stayed at the market till it was 5 pm and many of the televisions selling shops had closed. Fortunately a lot of people came to buy television and because I was the only one having I decide to sell one at a price of $120 so I ended up selling all five at a price of $120 each meaning I made a profit of $20 from each television. In this scenario what I did was trading.
From the scenario given above we can deduce that at any point in time an asset will have a market value. The market value of an asset is determined by the law of demand and supply. If the demand is higher than the supply then it will have a very high market value whereas if the supply outweighs the demand it will have a lower market value.

QUESTION 2

What are the strong and weak hands in the market? Be graphic and provide a full explanation.

STRONG HANDS
As I explained in question 1 the market value of an asset is determined by demand and supply. This indicates that the market value of an asset can be manipulated by people who hold large quantities of the asset. Strong hands in the crypto market can also be referred to as whales. They are individuals or entities that hold large portions of an asset and can there cause an upset in the market depending on their actions. Imagine if a whale who holds about 60% of an asset puts it out for sale, this will cause a massive decline in value because supply will be higher than demand and the vice versa. Whales or strong hands work in phases namely accumulation phase and distribution phase. In the accumulation phase is where the whale places buy orders when the price is relatively lower. It gathers the asset limiting the supplying circulation making the price increase progressively. After the accumulation phase the price goes up. The strong hands or whales decide to take profit by placing sell orders at a point where the price is high than when he bought this is known as the distribution phase.

WEAK HANDS
This refers to the vulnerable in the market. This is a group of traders that most often are used by strong hands. They are those who mostly lose in the market because the strong hands sell to them at high prices and letter buy from them at lower prices. They sell to the strong hands during the accumulation phase and then buy from the strong hands during the distribution phase. Mostly weak hands think in the opposite direction to the strong hands. Weak hands sometimes trade with emotions leading to wrong decisions.

QUESTION 3

Which do you think is the better idea: think like the pack or like a pro?

With the volatility of cryptocurrencies traders will have to very careful in order not to lose his or her investment. Thinking like a pack can easily make you get carried away by small manipulations. I personally think it’s better to think like a pro because.
Thinking like a pro will make you take positions similar to that of the strong hands in the market. This will enable you make profit rather than following the herd which is being in a position not conforming to the strong hands positions. Thinking like a pro makes you carry out adequate fundamental and technical analysis that helps you in making good decisions.
it is a better idea to think like a PRO.

QUESTION 4

Demonstrate your understanding of trend trading. (Use cryptocurrency chart screenshots.)

Trend trading is simply a strategy that is based on taking advantage of market trends. A trend refers to the current state of a market. A trend can either be a bullish trend or bearish trend. In trend trading you first of all identify the current trend and try to find out if the trend will continue or the trend is week and will reversed soon in order to take a position in the market. Lets use the chart below to further understand.
We can identify a trend and trade with it using the Elliot waves theory. It consist of 8 wave lines with the first 5 establishing the trend and the last 3 being the impulsive or corrective waves which helps in opening positions in the market.
The following rules are considered when drawing your wave lines.
• Wave line 2 should appear to fall below wave line 1.
• Wave line 3 must at least appear like the longest and never the shortest.
In the chart below waves 1to 5 indicates a bearish trend then wave lines a to c is the corrective waves.

QUESTION 5

Show how to identify the first and last impulse waves in a trend, plus explain the importance of this. (Use cryptocurrency chart screenshots)

From the explanation above I believe we can all identify the 5 waves, after identifying your 5 waves you will have to pick out the first impulse and the last impulse. The first impulse is be formed after the wave 5. The resistance level can is gotten by picking out the higher low formed by the corrective leg in this case waves a and b the support is formed picking out the lower peaks formed between 5 and a and the lower peak between b and c. we are done with the first impulse
To generate last impulse, you will have to go through the Elliott waves again then we generate the resistance and support levels just like we did in the first impulse.
From here, we can open a positions based on the given signal of the waves. It is best to consider both impulses because when the two are combined it gives very strong signals one can utilize.

QUESTION 6

Show how to identify a good point to set a buy and sell order. (Use cryptocurrency chart screenshots

From the picture that is displayed below the blue line used on the chart acts as the resistance line in the corrective leg of the impulse generated. At the point where the resistance was broken that is at point A. point A is a very good point to set a buy order since it marks the beginning of a bullish trend or run of candlesticks.

From the screenshot displayed below the blue line on the chart acts as the support of the impulse drawn. When the price movements breaks a support area it is a clear indication of a possible trend reversal. So at point B where the price breaks the support it is a good point to open a sell order in order not to run at a lose when the bearish trend continues. So Point B is a good point to open a sell order.

QUESTION 7

Explain the relationship of Elliott Wave Theory with the explained method. Be graphic when explaining.

The is some trace of relation between the Elliot Wave theory and the method used above in the sense that the first impulse in Elliot theory which consist of 5 wave lines and 3 wave lines being the corrective leg. The first impulse can be linkened to be the accumulation phase that is always initiated in the by the strong hands in an attempt to take advantage of the weak hands in the market. On the other hand the corrective leg can be said to be the distribution phase initiated by the strong hands in the market which pushes down the price.

CONCLUSION
I want to conclude by saying a very big thank you to @nane15 for giving such a great lecture.
The volatility of cryptocurrencies is what makes it a tricky thing to follow or to trade. Understanding what goes into the price movements of these assets can be a very good step in your trading adventure.
Understanding the concept of strong and weak hands in the market is a good point to start with. From the words we can say that strong hands are the people or entities in the market that has the ability to influence the market part whereas the weak hands are those without any influence in the market.
Learning and using the Elliot wave theory effectively is also a way of trading profitably. It consist the use of waves lines to establish trends in a market.