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Question 1- Define the following Trading terminologies;
Buy stop
Sell stop
Buy limit
Sell limit
Trailing stop loss
Margin call
(I will also expect an illustration for each of the first 4 terminologies listed above in addition to your explanation)

Due to the high profitability involved in trading in the financial market, there's also a high risk association with it. Therefore, it is important for traders to execute trade that are beneficial to them. Here comes the role of Risk Management in the life of a trader.

Buy Stop.

Buy stop is a market trading tool that is used by traders to execute trades and transaction in the market. A Buy stop is an order placed by a trader instructing the broker to buy/purchase a financial asset when it reaches a specific price.

Buy stop is place above the current price in the market and it is most effective in an uptrend/ bullish market. The trader in placing a buy trade anticipates that the market price will continue to rise. In a buy stop order, the take loss is beneath/below the buy order price and the take profit is above the buy order price.

Sell Stop.

Another tool used by traders to guard against risk in the financial market is the sell stop.
A Sell Stop is an order placed by a trader instructing the broker/software to sell a financial asset at a specific price and as the market price gets to that price level, the order is triggered.

For the sell order to be significant, it needs to be place in a bearish/downtrend market when prices are going down. And the stop order is place below the current price in the market. It is important to note that this order are mostly used in a volatile market when prices move frequently.

Buy limit.

Conversely to a buy order, a buy limit is placed in a downtrend market.
A buy limit is an order placed by a trader instructing the broker to buy a financial asset when it reaches a certain price below the current price in the market.

The buy limit order happens in a downtrend and are mostly placed around areas of support when a trader is anticipating prices to bounce and reverse.

Lets used an example. Say current price is at $2.60 and going down. A buy limit will be place at $2.45 by a trader. That is to say when prices get to $2.45 the order should buy. Similar to the buy order, the buy limit sets stop loss below the buy limit price, if prices reaches buy limit and continue to go down and reach the stop loss, then the trade is exited.

Sell limit.

A Sell limit is an order that is place by a trader instructing the software to enter a sells position at a particular price. A sell limit is placed when a market is in an uptrend and trader anticipates a price reversal.

The Sell limit is place above the current market price and the trader anticipate that the sell limit price is going to act as a resistance level in the Market where price is going to reverse. The stop loss in this order is place above the sell limit price and take profit below the sell limit price.

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Trailing Stop Loss.

Trading in the financial market is very risky and it is important for traders to guard against this type of risk. Trailing stop loss is one of the risk management tool used by traders to guard against risk.

A Trailing profit is an order that is set by trader to stop loss at a particular percentage below a financial asset current market price. The trailing stop loss is similar to the traditional stop loss but unlike the traditional stop loss, the trailing stop loss move with price if the trade is in the favorable direction and maintains the percentage of stop loss. In a case where price is not in favor of the trade, the percentage stop loss triggers the exit or stop loss option.

This option order is very important in risk management as it limit potential loss.

Margin Call

A margin call is referred to as a brokers demand to a Margin investor to increase the amount of money in his account. The Margin call is done to margin traders who sometimes trade on borrowed money from the broker.

A Margin call is done when the minimum required amount also known as maintenance Margin has been reached and the investor needs to refill his account. Brokers may require that investors sell some asset in their account to reach the minimum amount or margin call if the trader fails to deposit the required amount.

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**Question 2. Practically demonstrate your understanding of Risk management in Trading.
*Briefly talk about Risk management
Be creative (I will expect some illustrations)
Use a Moving averages trading strategy on any of the crypto trading charts to demonstrate your understanding of Risk management. (screenshots needed).

What is Risk Management in trading.

In every business, there is the potential for things to go both ways. Either it's a win or a loss. This is an important philosophy for traders to have, there is potential to gain as there is potential to loss.

Risk management can be defined as the various strategies or technique that are necessary to cut down losses and protect traders from losing huge amount of money. Risk Management is a very important component for both new and expert traders. Below we will discuss some of the ways to manage risk when trading.

Planning of trades.

A common says goes this

"Failure to plan is planning to fail".

Yes it is very Important aspect of life not just business and so the first step in managing risk is planning the trades we will enter.
Planning a trade involve planning what type of trade you want to do, plan the take profit position and the stop loss position. Because of greed most traders blow up their account because they don't plan a take profit position and as such, they have no stop loss.

Stop-loss, Take-profit strategy.

As earlier mentioned, it is very important for traders to carefully plan on how they will want to trade. An essential component of planning is deciding where to take profit or stop loss.

A stop loss order or position is the maximum agreeable price that the trader is willing to loss in any trade. The stop loss is mostly below the current price in a buy situation and above current price in a sell situation. At the stop loss price level, when the market hits the level, the trade is automatically exited so as to limit the loss per the trade.

On the other hand, a Take profit is a position above the current price in a buy situation and below the current price in a sell situation. When price hit this level, the trade is exited and the trader takes the profit at that level.

The catch in this is that most times than not traders fear the fact that they might set Take-profit at a level way below the potential profit and if trade is exited the miss out on the trade. The fear of missing out makes traders not to set Take-profit and eventually no stop loss. And in an unfortunate situation, the trader might blow up his account.

The Risk/Reward ratio.

Also, in planning a trade, traders must also specify their Risk/Reward ratio. The risk/reward ratio can be referred to as the amount of money is trader is willing to risk to earn an expected reward from the trade.

There is the 1% rule which states that traders should be willing to make to loss a maximum of 1% of their total Capital in each trade. That's to say if a trader has $1000, he is will to loss $10 in a trade.

Traders especially newbies are advice to have a 1:1 or 1:2 risk/reward ratio, meaning that, they should be prepared to loss one dollar for the prospect of gaining two dollars.

Use a moving average trading strategy on any crypto trading charts to demonstrate your understanding of risk management.

For this exercise I will be using the both the Simple Moving average and the Exponential moving average indicator. At the time of placing the trade, the EMA had just cross above the SMA in an uptrend market. This was a good buy signal.
And using the Risk/Reward ratio explained in the class, I decided to set the stop limit and take profit ratio at 1:2, that is risking one dollar for two dollars. As can be seen below

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Conclusion.

Risk Management is a very important component in the financial market to secure the trader against total loss of Capital. I believe it's important for each trader especially newbies in the crypto market to pay attention to this.
Stop profit and take lost positions are the best strategies a trader can practice for a good risk manager is the best trader.

Thank you professor @yohan2on for the wonderful lesson and researchable assignment. I enjoyed it.

CC. @yohan2on