Starting Crypto Trading - Crypto Academy / S6W1 - Homework post for pelon53
Hello everybody.
Welcome to this post, not only in this post actually in the opening week of the Season 6 of the Steemit Crypto Academy. The 5th season of the academy had been very useful for me as I learned a lot from all the professors. Today, I am going to make the homework post for dear professor @pelon53. The lecture was nicely explained by the professor and now I am going to partake in the homework. So, let's start the task without any wastage of time.
There are some questions that are asked by the professor as the homework for this week and I will try my best to explain all of them in the given order.
(01)
In your own words, what is fundamental analysis? Do you think it is important for a trader? Justify the answer.
As we all know that the prices of cryptocurrencies are not stable and they are highly fluctuating. The market of cryptocurrency is so volatile that it is very difficult for traders to predict the next move of the market. When a trader executes a trade in the market, it could be either in profit or in the loss for the trader. If the market follows the predictions of the trader, the trade will be considered in profit but if the market goes against the predictions of the trader, the trader could be at a loss.
To overcome the risks of cryptocurrency trading, the traders first do different analyzes of the market. There are some factors that affect the market of cryptocurrencies and the traders consider those factors to make a move in the market. One of the analyzes is the Fundamental Analysis. Let's discuss it in detail.
Fundamental Analysis
Fundamental Analysis is one of the best and most former methods to predict the future prices of cryptocurrency. In past, the fundamental analysis was considered to be the best way to predict the future price of the assets. This analysis type is also known as Macroeconomic Analysis. The Fundamental analysis can be done by considering a number of factors that affect the supply and demand of the respective assets, one of them being the economic events and affairs. These factors are kept in view to predict the next move of the market.
Fundamental analysis is highly applied in the Forex trading, stock markets, and commodity markets to predict the future moves of the assets. Some of the factors that affect the supply and demand of the assets, and hence the price of the assets are the GDP of the region (country), financial news, political factors, inflation, interest rate, and unwaged rate in the country. For instance, if the unwaged rate in the country is increased, the selling force on the assets is increased and thus the rates fall. The traders focus on these fundamental events and factors to make decisions in the market.
Likewise, the same is the case in cryptocurrency trading. The market of cryptocurrencies is also affected by a number of fundamental events and the study of these events is known as Fundamental analysis in crypto trading. Thus, these fundamental events are of great significance for crypto traders to predict the future prices of crypto assets.
Some Fundamental events in crypto trading
As I have told you before that there are some factors and events that affect the prices of cryptocurrency. Some of these fundamental factors are as follow.
- The listing of tokens on popular exchanges like Binance affects the prices of the tokens.
- Another factor is the Redenomination of the tokens.
- Collaboration with popular and major brands.
- Token burning also affects the prices of the tokens.
Importance for Traders
Fundamental analysis is of unique significance for crypto traders to predict the future price of crypto assets. I think the Fundamental analysis is one of the most positive ways to predict the future move of the market. Fundamental events play a very important role in the change in the supply and demand of crypto assets. Long-term traders are supported by the fundamental analysis, as well as, the fundamental events also help the short-term traders to assume the market of the assets.
One negative thing with the Fundamental analysis is that it is a very time-taking process but the assumptions that are made by the fundamental analysis are mostly true and helpful for the traders. Another drawback of the Fundamental analysis is that it ignores the behavior of the investors of the market while the psychology of the investors also affected the prices.
Illustration with example
Recently, it happened that the Lbank exchange proclaimed the listing of the Buff DogeCoin with the USD pair (DOGE/USDT) on the LBank exchange on Feb 7, 2022, at 11 a.m. This news was shared on Twitter by the official account of the Lbank exchange and thus the investors found a signal to execute a buy trade at the same time, the market of the Dogecoin also faced a buying force of about +18%. The move of the market is shown in the below screenshot.
You can see from the above images how the news of the listing of Buff Dogecoin (GOGE/USDT) on the LBank exchange affected the price of the DOGE coin. That's how the fundamental analysts predict the future price of the assets and make profitable decisions in the market.
(02)
Explain what you understand by technical analysis and show the differences with fundamental analysis.
As we have discussed one type of analysis that is Fundamental analysis. So, now we are going to discuss another type of price analysis that is known as Technical analysis. Let's have a deep look at it.
Technical Analysis
Technical analysis is the most used and the most successful method of analyzing the markets of the assets. Although, Technical analysis was not considered much successful in the past days now it has been developed in such a way that the trading experts are equally impressed by the technical analysis.
As we have discussed before that the Fundamental analysis is totally based on the economic or fundamental events or happenings but there is no scene like that with the Technical analysis. Technical Analysis can be defined as the prediction of the upcoming or future prices by keeping in view the historical moves of the market is called Technical analysis of the market.
The main point of the Technical analysis is that the fluctuations in the price of the assets are due to the emotions, behavior, feelings, or psychology of the traders or investors. Due to this reason, the price of the assets shows continuous repetitions and the future price of the assets can be predicted by studying the past data of the price of assets. In simple, the past behavior of the market is repeated again and again.
The Technical analysis can be done with the help of some important components like price charts, volumes, patterns, technical indicators, price movements, etc. All of these components are known as Technical Analysis Tools. These technical analysis tools are very useful for predicting the future price of the assets.
Technical analysis is highly valuable in highly volatile markets like the crypto markets. Thus, technical analysis is highly used in crypto trading to predict the next move of the market of crypto assets. The technical analysis tools help the traders to predict the best entry and exit positions in the market, by keeping in view the historical price data of the assets.
Illustration with Example
In the Technical analysis, the prices of the assets are represented graphically in the form of price charts and these price charts are actually the base of the technical analysis as all the technical analysis tools are applied on these price charts to predict the next move of the market. Let's have a look at a Japanese Candlestick pattern chart of XRP/USDT pair.
In the above screenshot, you can see that the support and resistance levels are drawn on the technical Japanese Candlestick Chart of the XRP/USDT pair. From this chart, the traders can predict the next move of the price of the assets by studying the historical moves of the price chart. The support and resistance levels that are drawn on the chart are showing the historical areas of supply and demand of the crypto pair. This price chart can also be used to predict the best entry and exit positions in the market.
Thus, the Technical analysis is very helpful for the traders and investors to investigate the market and predict the future value of the market before executing any order (trade) in the market. Moreover, the Technical analysis also helps the traders in proper risk management. Cryptocurrency trading is always very risky and it is advisable to manage this risky trading market. So, the traders can manage the risk by setting up the Stop-Loss and Take-Profit points in the chart.
Differences Between Technical and Fundamental Analysis
As we have discussed two types of analysis that are Fundamental analysis and Technical analysis, so now I am going to discuss some major differences between both these analysis types. So, have a look at the following table.
| Fundamental Analysis | Technical Analysis |
|---|---|
| In Fundamental analysis, the traders can predict the future price of the assets by focusing on the fundamental and economical events. | In Technical analysis, the traders can predict the future price of the assets by keeping in view, the historical data of the assets. |
| Fundamental analysis provides major support to long-term traders. | Technical analysis provides major support to the short-term traders. |
| Trading decisions are made on the basis of the signals that are given by the fundamental or economical events. | Trading decisions are made on the basis of signals that are given by analyzing the price charts. |
| Different fundamental factors like inflation, political interests, unemployment, GDP, Central Bank policies affect the prices of the assets. | Different technical analysis tools like price charts, indicators, patterns are helpful to predict the future price. |
| The fundamental analysis pays attention to the behavior of the investors or traders. | Technical analysis is totally based on the historical behavior of the investors or traders. |
| Fundamental analysis does not help the traders in risk management. | Technical analysis plays a very important role in risk management as traders can mention their take-profit and stop-loss points. |
| It does not signalize the exact or true entry positions to the traders for executing trades. | It signalizes the best entry opportunities for the investors. |
So, these are some major differences between both analysis methods. Although the working and prospectus of both types are different the traders can combine the signals of both analysis types to make their trading decisions more valuable.
(03)
In a demo account, execute a sell order in the cryptocurrency market, placing the support and resistance lines in time frames of 1 hour and 30 minutes. Screenshots are required.
As we have discussed the technical analysis in detail in the above section so now I am going to execute the sell orders in the market of XRP/USDT pair by drawing the support and resistance lines on different timeframes. So, let's have a look.
- Sell Order Using 1 Hour Timeframe:
First of all, I am going to execute the sell order in the XRP/USDT pair at the timeframe of 1 hour. Firstly, you can see in the below screenshot that I have marked the support and resistance lines at the timeframe of 1 hour. The resistance price was 0.9112$ while the support price was 0.6784$. I placed a sell order at 0.7989$. The price has just touched the resistance line and now it was moving downward.
In the above screenshot, you can see that I have set the stop loss at 0.8899$ and the take profit at 0.6799$. The setup of stop-loss and take-profit is necessary for risk management. The proof of the executed order is shown in the below screenshot.
- Sell Order Using 30 Minutes Timeframe:
Now, I have changed the timeframe from 1 hour to 30 minutes and going to execute a sell order. Firstly, you can see in the below screenshot that I have marked the support and resistance lines at the timeframe of 30 minutes. The resistance price was 0.9150$ while the support price was 0.6713$. I placed a sell order at 0.7588$. The price has just touched the resistance line and now it was moving downward.
In the above screenshot, you can see that I have set the stop loss at 0.8763$ and the take profit at 0.6720$. The setup of stop-loss and take-profit is necessary for risk management. The proof of the executed order is shown in the below screenshot.
(04)
In a demo account, execute a buy order in the cryptocurrency market, placing the support and resistance lines in time frames of 1 day and 4 hours.
As we have discussed the technical analysis in detail in the above section so now I am going to execute the buy orders in the market of MANA/USDT pair by drawing the support and resistance lines on different timeframes. So, let's have a look.
- Buy Order Using 1 Day Timeframe:
First of all, I am going to execute the buy order in the MANA/USDT pair within the timeframe of 1 day. Firstly, you can see in the below screenshot that I have marked the support and resistance lines at the timeframe of 1 day. The resistance price was 5.9$ while the support price was 1.7$. I placed a buy order at 3.06$. The price has just touched the support line and now it was moving upward.
In the above screenshot, you can see that I have set the stop loss at 1.99$ and the take profit at 5.04$. The setup of stop-loss and take-profit is necessary for risk management. The proof of the executed order is shown in the below screenshot.
- Buy Order Using 4 Hours Timeframe:
Now, I have changed the timeframe from 1 day to 4 hours and going to execute a buy order. Firstly, you can see in the below screenshot that I have marked the support and resistance lines at the timeframe of 4 hours. The resistance price was 3.45$ while the support price was 1.70$. I placed a buy limit order at 3.10$. The price has just touched the resistance line and now it was moving downward.
In the above screenshot, you can see that I have set the stop loss at 2.68$ and the take profit at 3.46$. The setup of stop-loss and take-profit is necessary for risk management. The proof of the executed order is shown in the below screenshot.
(05)
Explain the “Hanging Man” and “Shooting Star” candlestick patterns. Show both candlestick patterns on a cryptocurrency market chart. Screenshot is required.
There are several kinds of price charts that are used for technical analysis. One of them is the Japanese Candlestick pattern that consists of candles of various lengths, showing the open, close, high, and low price of the respective timeframe. There are some candlestick patterns that are used to analyze the ongoing market. Now, I will discuss only two of them, Hanging Man and Shooting Star. So, have a look at them in detail
Hanging Man
Hanging Man is one of the most interesting and very useful candlestick patterns that is used to make profitable decisions while trading in cryptocurrency. The Hanging man is formed at the top or peak of a bull trend (uptrend). Hanging man consists of a single candlestick with a very short body and a long or extensive lower shadow or wick. The open and close prices of the candle are very close to each other in this pattern.
The identification of the Hanging Man candlestick pattern is so simple. Some of the identifications are that this pattern is formed at the peak or top of an upward trend, the candle at the top has a very short body that shows that the close and open prices are very near to each other, long or extensive lower wick or tail that is clear enough to be visible easily, the upper shadow or wick of the candle is too short or invisible.
Hanging Man is formed at the top of the uptrend and signalizes a downward trend. The formation of the Hanging Man candlestick is a signal of a trend reversal from bullish to bearish. The small body of the candle signalizes that the entry of the sellers into the market has weakened the buyer's pressure. When the price opens, the sellers stepped into the market and lower the price but after some time the buyers enter the market to back up the up position. Thus, the candle closes near the open price.
Let's have a look at an example of the Hanging Man candle.
In the above screenshot, you can see that a Hanging Man pattern is formed in the SOL/USDT pair. The price of the market was in an uptrend and at the peak of the trend, a candle with a short body and long lower wick is formed that signalized a trend reversal. Following the signal, the trend reversal occurs and the downward trend started. This is the Hanging Man pattern.
Shooting Star
Shooting Star is also another important and very useful candlestick pattern that is used to make profitable decisions while trading in cryptocurrency. The Shooting Star is also formed at the top or peak of a bull trend (uptrend). Shooting Star is the exact opposite of the Hanging Man. It also consists of a single candlestick with a very short body and a long or extensive upper shadow or wick. The open and close prices of the candle are very close to each other in this pattern also.
The identification of the Shooting Star candlestick pattern is so simple. Some of the identifications are that this pattern is formed at the peak or top of an upward trend, the candle at the top has a very short body that shows that the close and open prices are very near to each other, long or extensive upper wick or tail that is clear enough to be visible easily, the lower shadow or wick of the candle is too short or invisible.
Shooting Star is formed at the top of the uptrend and signalizes a strong downward trend. The formation of the Shooting Star candlestick is a signal of a trend reversal from bullish to extreme bearish. The small body of the candle signalizes that the entry of the buyers into the market has weakened the sellers' pressure. When the price opens, the buyers stepped into the market and move the candle to the upside but after some time the sellers enter the market to back up the down position. Thus, the candle closes near the open price.
Let's have a look at an example of the Shooting Star candle.
In the above screenshot, you can see that a Shooting Star pattern is formed in the SOL/USDT pair. The price of the market was in an uptrend and at the peak of the trend, two candles with short bodies and the long upper wick are formed that signalized a trend reversal. Following the signal, the trend reversal occurs and the extreme downward trend started. This is the Shooting Star pattern of the candlesticks.
Conclusions
The market of cryptocurrencies is so volatile that it is very difficult to predict the next move of the market. There are some analysis types that are Fundamental analysis and Technical analysis. Fundamental analysis deals with the prediction of the future price of the market by focusing on the economical or fundamental events or affairs. Although it is time-taking the signals that are given by this type are most profitable.
While the Technical analysis deals with the study of the price charts of the assets and the use of different technical analysis tools like indicators, patterns, price movements, etc. The historical price data of the market is focused to predict the next move of the market. According to this analysis, the price repeated its behaviors again and again. There are also some patterns that are used to predict the future price of the assets. Hanging Man and Shooting Star candlestick patterns are useful to assume the trend reversals in the market.
So, that's all about the homework post for the opening week of the Season 6 of the academy. Hopefully, all of you will like it. Special thanks to dear professor @pelon53 for such an amazing lecture.
Writer: @steemdoctor1 (Crypto Student)
