Crypto Academy Week 12 - Homework Post for [@fendit]

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Hello guys, it’s a pleasure to be part of this wonderful community and to take part in this series of lectures given by our noble professors.
This post is my homework submission for professor @fendit on this week’s lecture.

Before I start with my homework, I will like to talk about some important terms you need to know when you want to start investing in cryptocurrencies. I will talk about them one after the other in the following paragraphs.

1. Over trading

Investing in cryptocurrencies is something that involves time and analysis. Before you step into this business you should always try as much as possible to understand when it is good to purchase a coin and when it is bad to purchase a coin. If you’re able to identify the right time to trade your coin, it could help save you from performing several trades. Mind you, if you follow someone’s idea blindly without making your own analysis or observing the chart patterns of the coin you’re trading in, it could also force you to make multiple trades.

Performing multiple trades may incur huge losses to the investor. For example; if the the price of a coin is at the highest it has ever been and you go in to purchase it, the probability of running into loss is very high since the price of the coin can decrease at any time and you’ll be forced to buy again. This then leads to multiple trades and you would have lost some money in the investment. But if you analyze the trend/chart of the coin, you’ll be able to buy the coin when its price is very low and that would give you profit when the price of the coin goes high.

2. FOMO(Fear Of Missing Out)

If you’re new to the cryptocurrency world, you’re likely to exhibit this act. This is because you might not have knowledge about how the price of cryptocurrencies can be volatile and you may be compelled to make unnecessary trades which fill give you a loss.
When I first started investing in cryptocurrencies, I thought when the price of BTC drops it might not increase again. So many of the time I would just sell my coin when there is any small decrease or increase in the price. At that moment I was afraid that if I did not sell my coin, the price would further go down and I would bear a huge loss.
But now, with the little understanding I have in cryptocurrencies, I have learned to be patient when the price of a coin reduces as it can go significantly high at any moment.

3. Stop loss

With the excitement the increase in coins brings, you should always have it at the back of your mind that, the coins can also decrease drastically at a very low price. This is due to the several factors that the cryptocurrencies are being exposed to in the market.
This is the main reason why an investor should try and set up a stop loss. With this you should set a stop loss at which you’re comfortable at, and should know that you will get a loss if the price should decrease.

4. Revenge Trading

When you are investing in cryptocurrencies, one thing that should always remind you is patience. If you don’t have patience, you will be forced to make mistakes and get losses. For instance when you enter the trade and you see that you’re running at a loss, don’t try to make up for the loss in a hurry. If you do so, you may not be able to analyze the chart well enough and get to know when it is the right time to invest and when it is not. This will in turn accumulate more losses for you.
Revenge trading is what many newcomers to crypto trading may struggle with as they might think it will be wise of them to get their money back but it is definitely not.

Now that I have explained these terms, I would like to use the knowledge acquired and answer the homework tasks.

A) Place yourself in the following situation:You bought BTC a couple of days ago at a price of USDT 62K. Suddenly, you see that this situation is going on:

What would you have done before reading this class? What would you do now? Explain in detail if there's something you would do differently.

With the little knowledge I had before this class, what I would do is I would have analyze the support and resistance level of the coin before I made such a purchase even though it is a bit risky. I am very patient when it comes to cryptocurrencies but looking at the chart it would cause some small FOMO effect in me but I would still wait for an increase in the coin before I make any sales.

Now after reading this week’s lecture, I would have appreciated the use of stop loss in this case. I would then set it at price that is good for me and when the coin drops to that price, I would then sell and get small percentage of loss.

B) Share your own experience when it comes to making mistakes in trading:
What mistakes have you done when trading and what did you learn from them? If you have little experience when it comes to trading, tell if you got to know about someone else's experience.
Which of the strategies discussed in this class you find the most useful for you? Why?

One big mistake I have done in trading was when I started investing in cryptocurrency(BTC). I bought some amount of the coin when the price was still around $15k and I was waiting for small increase so that I can sell and make profit. But one day, I woke up and the price of BTC dropped, I panicked and thought if I didn’t sell my coin, I would lose everything. So I hurried and sold my coin at a very low price and made a loss. At that time, I thought it was the best option since I had little knowledge about the price volatility of cryptocurrencies.

After selling the BTC I had, I then performed another purchase so that I could get my money back and when this time around the price went up to $18K and I was so happy. I went on to sell the coin again so that I could get my money back and some little profit.
Few days later I went back to check the price of BTC, and it went very high reaching about $27K. I was shocked at how it increased and disappointed. Since I wasn’t patient enough and allowed FOMO to force me in selling my coins.
I could have gained a lot of profit if I waited for some time.

Among the strategies I’ve learnt in this lecture the ones I value most is; avoiding over trading and avoiding FOMO. I think this two are related.
This is because if you try your best to keep your emotions out of this kind of business then you will be able to prevent yourself from performing multiple trades( over trading).

When you’re able to adopt to these strategies, then you will be able to always stay patient which will in turn open more opportunities for you to gain much more profits from investing in cryptocurrencies.

C) Place yourself in the following situation:
You're browsing Twitter and you see this:

You see that whenever this kind of things happen, BTC prices rush. What would you have done before reading this class? What would you do now? Explain in detail if there's something you would do differently.

He has made some tweets about Dogecoin in recent days and it has increased significantly. So If I saw this post on Twitter before going through this lecture, I would have thought this is a good opportunity to make profits without considering first, the ups and downs involved in trading. I would have been eager to rush into business due to the FOMO effect caused by his tweets without properly looking into the possible outcomes.

After this lecture I would have realized that rushing into a trade without carefully analyzing the trend/chart could bring losses. So in this case, I would now carefully analyze and see whether it is good for me to enter business or not.

This particular tweet can cause a significant increase in price of the coin but this is increase may also be temporary. So after this class I would take my time before entering this business in order to prevent myself from over trading and FOMO effect which could safe me from bearing a loss.

Conclusion

I would like to thank the professor @fendit for preparing this lecture. It has been really helpful for me as I have learnt new thing from it. This lecture will really help me from making mistakes in the future.
Thank you for reading.