Leverage with Derivatives Trading using 5 Min Chart- Steemit crypto Academy- S6W1- Homework post for @reddileep
Hello everyone hope you all are well. Today i attend one more lecture given by professor @reddileep. In this lecture i learn about the Leverage with Derivatives trading. Now i am going to submit my homework post for this lecture. So let's start.
Introduce Leverage Trading in your own words
As we all know most of the traders do trading with the money they have in their wallets of their own. So they buy and sell these assets and make profit. But if a trader has less money he will be able to earn the limited rewards or gains not a huge profits . if a trader founds a good opportunities in market but he has less money in his wallet so he can buy these opportunities using spot trades . For this reason leverage trading comes into existence. By using leverage trading you can buy a huge quantity of coins or assets if you own only a small amount. But there are few risks in this type of trading that may lead your portfolio to zero so always use this type of trading with proper knowledge .
Leverage trading concept comes for forex trading and then crypto trading adopts it also. Leverage trading is the type of trading in which traders buy assets with the borrowed money . So in leverage trading traders borrow money from the brokers and then make a trade from borrowed money. This helps trader to make a trade in huge quantity rather having a less money in his wallet. So if trader founds a good opportunities in market and has less amount in his wallet by using leverage trading he can take part in that opportunity and make a good profit. Lets understand it better by one example , jhon has 100 dollars in his portfolio so he founds a good buying opportunity in btc but he has less money in wallet. So he went for leverage trading where he can buy btc with a huge amounts depending on his chosen leverage. If he choses 10x leverage he will buy btc for 1000 dollars. So he will be able to gain more money if market goes up than by buying it in spot wallets.
As i mentioned above by using leverage trading trader can get a good profit but there is huge risk in this trading that can lead your portfolio to zero. In leverage trading if market goes in opposite direction that may liquidate your whole buying and your trade can close automatically. Same thing happens to me few days ago when i take part in one trade that got liquidate. There are lot of advantages of leverage trading but has also few disadvantages. So in leverage trading trader should make his trade only if he has good information. In leverage trading also you can make profit both in bullish as well as bearish market.
What are the benefits of Leverage Trading?
Following are some benifits of leverage trading:-
Leverage trading provides borrowed amount at a vary low interest.
Leverage trading increases the buying power of trader despite trader has less money in his wallet. In leverage trading trader can increase his investment by many times.
In Leverage trading trader can earn profit both in bullish as well as bearish market. If trader knows market will go up he can make buy order and he knows market will go down he can make sell order and take profit as well.
By using leverage trading trader can earn huge profits has less money in hand.
In leverage trading trader can see his profit as well as his loss easily as it is displayed always in his trade.
In leverage trading if your trade goes in wrong direction and may have danger of liquidate you can add more money in your trade and save your assets.
Leverage trading lot of good concept such as risk management.
What are the disadvantages of Leverage Trading?
Having lot of benifits leverage trading has disadvantages too which are given below:
Leverage trading is vary risk for traders among all the trading methods. In leverage trading traders may face huge losses than spot trades.
Having high profit gaining ability in leverage trading there is also high loss chances this is because you have done a trade of high amount than you own. Loss works same as profit in market goes reverse.
In leverage trading users funds gets liquidated if market crushes. This thing happens when your loss goes equal to your initial investment. For example you make trade of 100 dollars and you got 1000 dollars trade by keeping leverage to 10x and your loss in whole 1000 dollars goes equal to 100. Your founds will liquidate.
In leverage trading it cuts fees for holding your trade for a long time that increase chances of loss. This thing doesn't happen in spot trading.
Leverage trading is not easy for newbie traders.
What are the Basic Indicators that we can use for Leverage Trading? (Need brief details for any essential Indicators and their purposes)
In crypto trading two thing's are vary important if you want to became an successful trader one is basic information regarding the asset in which investing and another is the technical knowledge. Technical knowledge includes the knowledge of charts , graphs and indicator. If you are able to find trading opportunities by using indicators then you will be able to gain a huge profit. In crypto market there are lot indicators by which you can find the trend and people are using them for trading. But always use two indicators in combine to get efficient signals. I will talk about two indicators which are used for leverage trading.
MACD INDICATOR
The first indicator that traders can use for leverage trading is MACD indicator. MACD means moving average convergence divergence. MACD indicator consists of two lines one is MACD line and another is signal line. MACD indicator shows relationship between two moving averages. MACD indicator is used to find the trend and momentum in market. On crossing the MACD line and signal line it gives us information regarding the market trend in which direction market will move.when the MACD line moves above the signal line it gives by buy signal and when the MACD line moves below the signal line it gives us sell or short signal.
image taken for tradingview source
Lets look at the above picture. In this the macd line goes below the so this is bearish signal. After that market goes down. So here we can make short position.
Image taken from tradingview source
Now see the above example in which macd moves above the signal Line that gives buy or long signal. After that market moves up so here you take long position and make good profit.
RSI indicator
RSI indicator is one more indicator that can be used for leverage trading. RSI indicator means the relative strength index indicator. In RSI indicator there is price line that moves up and down according to market movement , in RSI indicator price line moves between two extremes 0 and 100.RSI indicator tells about the oversold and overbought conditions and that conditions are used for trading. When the price lines moves above the 70 it is overbought condition after this there is huge changes of bearish cycle. So at overbought condition trader can take a short trade in leverage trading. When the price line moves below 30 it is oversold condition after this bullish cycle is coming. At this time trader can make a long or buy trade and get profit.
image taken from tradingview source
From the above image the price line moves above the 70 that is overbought condition after that market goes into bearish condition. So at this condition trader can make short position.
Image taken from trading view source
Now see one more example of btc price line moves below 30 this is oversold condition after this condition market is expecting is go up and same thing happens so you can make long position here and make profit.
How to perform Leverage Trading using special trading strategies (Trading Practice using relevant indicators and strategies, Screenshots required)
In this question we have to find trading strategy which can we use for making leverage trading. We can take part in leverage trading by knowing all about the asset such as its supply or any news coming or any event coming that may gave us quick profit on the other hand we can find opportunities in market technical such as using indicators, charts, etc. I will try to find trading strategies by using indicators such as macd and rsi in combine.
Buying strategy
We have to focus on different conditions before buying any asset and make a long period. First look at the macd indicator if the MACD line moves above the signal sign that gives us signal that market will go in the upward direction. For conforming this signal now look at the RSI indicator it shows oversold condition at same point so it also tells us now market will go in upward direction so you can make a long position here.
Also if you find the price is coming in contact with the support level so can take long position here as we always see from the support level price bounces back to reverse direction. If you found reverse head and shoulder pattern making we can take long position here also.
image taken form tradingview
Look at the above screenshot of btc usdt in which macd line crosses above the signal line and also RSI indicator tells us oversold condition by moving price line below 30. So both the indicators tell us that market will go upward. Also price of btc was at support level expecting bounce from here. Trader take take long position here and close it when trend gets reversed.
Selling strategy
As like taking part in long position we have to look on different conditions for finding selling strategy or making short trade. First look at the MACD indicator if the macd line crosses below the signal line that gives us bearish signal after that price will go down so it gives us short position. Now look at the RSI indicator if the price line goes up and crosses above 70 it is overbought condition then it also tells us sell signal. So by conforming from the both indicators you can take part in this trade.
Screenshot taken on tradingview source
Look at the above macd line crosses below the signal line same time rsi moves above 70 which is overbought so both tells us market will go down and same thing happen. So we can take short at top and sell at bottom.
Do a better Technical Analysis considering the above-explained trading strategy and make a real buy long or sell short position at a suitable entry point in any desired exchange platform. Then close that buy or sell position after appearing trend reversal signal from the Parabolic SAR indicator. Here you can also close your Buy or Sell position using any other desired Trading Method in addition to the signal coming from the Parabolic SAR indicator. However, here you must prove that trading method as a reason for closing your position. (Usually, You should demonstrate all the relevant details including entry point, exit point, resistance lines, support lines or any other trading pattern. Use at least 2X leverage and no more than 10X )
In this last question we have to form a real leverage trading. So for this task i choose tlm usdt asset. I open tlm- usdt and apply MACD indicator and RSI indicator. On looking to macd indicator i found macd line is crossing below the signal line that gives short or sell signal. I then look at the RSI indicator which tells me overbought condition so that also gives me short signal.
Taken from binance app
You can see from the above screenshot clearly that macd line goes below signal line and it is overbought condition. Market will go in downward direction.
Image taken from binance app
You can clearly see my entry position in tlm coin. I put this trade with 2x leverage.
Image taken from binance app
I close my position after some time when on macd indicator macd line crosses above the signal line once again.
Conclusion
Leverage trading is type of trading carried out by using borrowed money from brokers or exchange. Leverage trading increases the trading power of trader if he has less money in his wallet. Leverage trading increases the profit of trader. Leverage trading is risky trading. Leverage trading has both advantages and disadvantages. For Leverage trading trader should have enough knowledge regarding the market as well as regarding the asset. Trader can use different indicators for leverage trading and make good profits.
THANKS FOR READING.
I thanks to professor @reddileep for giving such a nice lecture and invite him to check my homework task.