Steemit Crypto Academy – Season 3 - Week 8 - Post for @yohan2on

Buy stop

A buy stop order is basically a type of order that is popular and common in some of the top crypto exchanges. A buy stop order has to do with setting conditions that must be met before a trigger occurs. Simply put, a buy stop order is a conditional order that triggers the crypto exchange to only buy a particular cryptocurrency when the price hits a pre-specified price. Immediately the price of the cryptocurrency hits the pre-specified buy stop price, it would trigger the crypto exchange to fill the order and buy.

For instance, the current price of MATIC is $1.52700 but the trader wants to buy MATIC at $1.68441. This is not possible in a normal trading situation because the trade would immediately fill from the best price which is the best market price at the time. However, it is possible for the trader to buy MATIC at a higher price than the current market price using the buy stop order. This order is beneficial when the trader is anticipating that the market would enter an uptrend.

Sell stop

A sell stop order which can also be referred to as stoploss order, is also very popular and common in some of the top crypto exchanges. A sell stop order has to do with setting a condition that must be met before a trigger occurs. Simply put, a sell stop order or a stoploss order is a conditional order that triggers the crypto exchange to only sell a particular cryptocurrency when the price hits the pre-specified price. Immediately the price of the cryptocurrency hits the pre-specified sell stop price, it would trigger the crypto exchange to fill the order and sell. This is one of the most common orders for traders who want to reduce their losses if the price goes against their prediction.

For instance, a trader buys MATIC tokens at the current market price of $1.52779. The trader has predicted that the price of MATIC would rise to $1.64075 so as to sell and make profit. However, the trader knows that the price of MATIC can still fall. So in order not to incur a huge loss if the price of MATIC does not rise but only falls, the trader can set a sell stop or a stoploss at a price lower than the entry price. The trader can set the sell stop price at $1.49725. If the price falls to $1.49 , it would trigger the exchange to sell and exit the market. However, If the price does not fall and continues to rise above the entry price, then nothing happens and the price can continue to go higher and higher to any point until the trader decides to sell. Sell stop order can also be used to protect a trader's profit. When a trader is in profit, the trader can use a sell top to prevent losing all the profit when the price reaches the sell stop price. However, if the price continues to rise, the trader's profit would continue to increase until the trader decides to sell.

Buy limit

A buy limit order is basically a type of order that is popular and common in a lot of the top crypto exchanges. A buy limit order is used to place a buy trade to buy a particular cryptocurrency at a specific price only. For instance, a trader wants to buy 250 MATIC tokens at the price of $1.47588 when the current price of MATIC is at $1.52801, the trader would set a buy limit order that sets a condition on the exchange to only fill the buy order when the price of MATIC hits the $1.47588 A buy limit order is beneficial in certain trading situations and is mainly used by traders to place a buy trade when the trader is anticipating that the price of the cryptocurrency would fall.

Not every trader has the time to regularly monitor the market. The buy limit order becomes helpful when a trader is anticipating that the price of a particular cryptocurrency would fall but would rise again. However, the trader don’t want to miss out when the price eventually falls. The buy limit order would make the trader’s buy limit order to be filled immediately the price falls to the specified price. This is great because when the price reverses to the upside, the trader would sell and make profit.

Sell limit

A sell limit order is like the buy limit order but this time, for selling. It is basically a type of order that is popular and common as well in a lot of the top crypto exchanges. A sell limit order is used to place a sell trade to sell a particular cryptocurrency at a specific price only. For instance, a trader wants to sell 250 MATIC tokens at the price of $1.61836. The trader would set a sell limit order that sets a condition on the exchange to only fill the sell order when the price of MATIC hits the $1.61836.

A sell limit order is very useful and is mainly used by traders to place a sell trade when the trader is anticipating that the price of the cryptocurrency would rise. This is great for traders that want to make their profit but don’t have time to be monitoring the market every time. The trader can set the sell limit order and go on a vacation, knowing fully well that once the price rises to $1.61836 and above, the sell limit order would have been filled already so as to make profit.

Trailing stop loss

A trailing stop loss is seen as a very effective risk management strategy that is used by a lot of traders when trading cryptocurrencies. Trailing stop loss is a very popular feature that is available on some top crypto exchanges. Trailing stop loss is basically a dynamic stop loss that always follows the current market price to reduce profit loss. Trailing stop loss is mainly used by traders in an uptrend and when the price of the particular cryptocurrency is continuously rising.

A trailing stop loss is a condition order that instructs the crypto exchange to set a dynamic stop loss that always follows the market price and only trigger a sell immediately when the price hits a pre-specified trailing stop-loss price. This will trigger the crypto exchange to sell. It is mostly used after buying a particular cryptocurrency in an uptrend and the price continues to rise upwards. Depending on the percentage distance used for the trailing stop loss, it would continue to follow behind the market price and would only trigger an exit when the price hit the trailing stop loss price and lower.

Margin call

In margin trading, sometimes trades and predictions don’t always go as expected and the market would go against the trader. A margin call is not pleasant because it means that the trader is already in a losing position. A margin happens to traders whose margin balance is in a critical condition and has decreased below the margin requirements as a result of loss from margin trading. When the margin call happens, the trader would be required to deposit more funds or assets into their account. They trader must deposit more funds or assets into the account or have their positions liquidates to make up for the margin requirements.

Question 2 - Practically demonstrate your understanding of Risk management in Trading

When it comes to cryptocurrency investing or trading, there is always risk involved as the cryptocurrency market is very volatile and heavily influenced by a lot of factors which means that no prediction is 100% certain and the market can anytime go against any price prediction. This is where risk management comes into play because it is basically a strategy that helps a cryptocurrency trader or an investor to reduce risk and in turn make the most profit.

In trading or investing, there is no set out formula as nothing is certain most especially in the cryptocurrency market. There is always pros and cons in ever strategy used by traders that is why every trader have their own strategy that works for them. For me, when it comes to risk management, I focus on stoploss, risk/reward ratio, take profit, investment portfolio and risk capital.

Stoploss

Stoploss is a very good risk management strategy and I make use of it in trading any cryptocurrency asset. Because of the highly volatile cryptocurrency market which is heavily influenced by a lot of factors, stoploss is very important to help reduce loss if a trade goes against my prediction. I like to set my stoploss not too close my entry price but at the same time, not too wide from my entry price. This is because when the stoploss point is too close to the entry price, there is a big chance that it will get triggered when there is a sharp drop and rise in price. Also, if the stoploss is too wide, there loss will be greater if the market continues to fall and triggers the stoploss.

I always try to find the right balance when setting my stoploss. Trailing stoploss is also another amazing feature because it helps me to always retain profit even if the market begins to fall. I start with the regular static stoploss when entering a trade, and when the trade is in profit, I change to a trailing stoploss to always preserve profit while also riding the upward movements to any limit until the market reverses and my trailing stoploss would trigger and preserve the profit.

Risk/Reward ratio

This for another risk management strategy that I use whenever I want to any cryptocurrency asset. Risk/reward ratio is important because it allows me to make the decision and decide what I am willing to lose in order to chase the gain, ahead before venturing into a trade. I like to use the risk/reward ratio of 1:2 because for me, I consider it a reasonable and logical ratio. Risking $50 to chase $100 is smart for me because it is not being too greedy but logical.

For instance, I might find a good cryptocurrency to buy with a capital of $1000 at a price of $1 per coin. My analysis tell me that the coin would make me a profit of $100 in a short time, however, since it is a new coin, there is a chance that the price might fall. I can set my stoploss at 5% of my capital and take profit at 10% of my capital. This means that if the price rises to $1.1, I would make my profit, however, if the price falls to $0.95, I would exit the market and wait to buy lower or move on.

Take profit

Take profit is another very important risk management strategy that I use because the more profit taken, the less loss in capital. I always try to take profit whenever I venture into any trade because anything can happen in the cryptocurrency market and profit made can be wiped out in an instance due to many factors such as sentiments, negative news. Depending on the trade, I can use multiple take profit points or take profit by exiting the market. This is important for me because it means I would have more capital to buy another cryptocurrency or wait for the price to inevitably retrace so as to enter the market again.

Segmenting trading capital into parts

Before venturing into any trade or investment, I like to segment my trading or investment capital into multiple parts and only trade with one part on a particular cryptocurrency. This is important because there is less risk of losing all the capital on a single trade. For instance, with a capital of $250, I can segment the capital into 5 parts of $50 each. I would only trade with $50 on a particular cryptocurrency so even if the market goes against my trade, I only lose $50 and still have capital left to enter another trade that can make me more profit and recoup the loss and still be in profit.

[Design created by me]

Use a Moving averages trading strategy on any of the crypto trading charts to demonstrate your understanding of Risk management

AAVE/USDT Pair

On the AAVE/USDT pair, I made use of the 50 and 200 period moving average. My trading strategy when using the moving average is that I always look out for the golden cross which is a great signal that the market might be entering into an uptrend. On the chart, the golden cross showed up when the 50 period moving average crossed above the 20 period moving average line. When I spot the golden cross, I usually wait for a large bullish candlestick before entering the market.

When entering the market, I usually use a risk/reward ratio of 1:2 and ensure to set my stoploss and take profit/exit point. We can see on the AAVE/USDT pair that I set my stoploss below my entry price so even if the market reverses, it would limit my loss. I also set my take profit/exit point so that once the market hit my take profit point, I would exit the market and make my profit.

Conclusion

In the cryptocurrency space, trading is one of the main activities that is very common and more and more users are venturing into cryptocurrency trading. At the moment, there are a lot of crypto exchanges that are in existence with each offering trading features to improve cryptocurrency trading experience. Some exchanges offer advanced features that allow traders to be more logical in their trading and also help traders reduce risk. Risk management has proven to be a very effective strategy that is very important in trading to help traders reduce risk and also make the most profit.