Steemit Crypto Academy Season 3, Week 8|Intermediate Course|Homework Post for  @yohan2on| Risk Management in Trading

in SteemitCryptoAcademy3 years ago

THE BUY STOP

Traders use the buy stop as a market trading instrument to complete trades and transactions in the market. A buy stop order is a trader's instruction to the broker to buy or sell a financial asset when it reaches a certain price.

When the price is on an uptrend, this is a long/buy order placed in the market. You put a long/buy order above the current market price to post a Buy stop order. When the price reaches the point where we placed our order, the order will be executed.

A buy stop order must be placed above the current market price in order for the purchase order to be executed when the price reaches that level. After that, we put down a buy stop order.In a bullish market, a buy stop is most beneficial. When a trader places a purchase order, he or she expects the market price to climb further.

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THE SELL STOP

The sell stop is another technique employed by traders to protect them against danger in the financial market. A Sell Stop order is a trader's instruction to the broker/software to sell a financial asset at a specified price, and the order is activated when the market price reaches that price level.

Our order was placed at a lower price than the current market pricing. When the price of an asset is falling, this order is placed a little lower than the current market price. When pricing reaches our order point, the market carries our order along.

The market trend is the most important consideration for a successful sell stop order. We set our order lower than the market price if the trend is bearish. If the market price does not reach our sell stop order point, the order will stay in the order book. This order is mostly utilized in turbulent markets.

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THE BUY LIMIT

In a downtrending market, a buy limit is used instead of a buy order. A buy limit order is a trader's instruction to the broker to buy a financial asset when it hits a specific price below the market's current price.In a downtrend, buy limit orders are typically placed around levels of support when a trader expects prices to bounce and reverse.

To better understand what I just said, when the market is in a bullish trend and it's creating higher and higher swing points, we can trade with a buy limit order because we know that once the swing high point is created, the trend will retest support before moving up again, so we place our order at the previous support point the price just broke.

As a result, when the market price retests this support, it confirms our order. That's essentially how you use the buy limit. To place a purchase order, the trend must be positive, as we all know.

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THE SELL LIMIT

The trend is bearish for sell limit, just as it is for purchase limit. When the trend is bearish, a sell limit order is placed above the current market price. This order is placed above the current market price because the trader believes the trend will retest the resistance point.

The trend must be bearish in order to set a sell limit order, and the trend must be producing swing low points before retesting resistance points. To utilize the sell limit in this sort of trend, we put the sell limit order at the resistance point after the price has broken resistance and produced a swing point, so that when the price retests the resistance point, the sell limit order will be confirmed.

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THE TRAILING STOP LOSS

Trading in the financial market is extremely hazardous, and traders must take precautions to avoid this sort of risk. Traders utilize trailing stop losses as one of their risk management tools to protect themselves from risk.

A trailing profit order is a stop-loss order placed by a trader at a certain percentage below the current market price of a financial asset. The trailing stop losses is comparable to the conventional stop loss, but unlike the traditional stop loss, the trailing stop loss moves with price and retains the percentage of stop loss if the transaction is in a favorable direction.

When the price is not in the trader's favor, the percentage stop loss option triggers the exit or stop loss option. As the price advances in the trader's favor, the trailing stop loss moves by a percentage. It will not, however, move if the deal is not favorable.

Basically, a trailing stop loss helps a trader to benefit because if the trade is profitable and we place a trailing stop 10% away from the market price, the following stop will keep moving to preserve that 10% distance. Both bearish and positive trends might benefit from the usage of a trailing stop loss. However, if the trade reverses the trend, the following stop loss will no longer move.

THE MARGIN CALL

This is for traders who trade on margin. They must make a deposit in their account after they receive a margin call. Due to a loss deal, a margin trader's funds fall below the required level expected by his broker.
It's similar to an indication telling a margin trader that he needs to top up his account. Margin trading, as we all know, is borrowing money in order to trade.

There is a minimum amount that must be accessible in the account, so when a trader receives a margin call notice, they must deposit money into that account. A margin call is a request from a broker to increase the amount of money in a Margin investor's account. Margin calls are made to traders who use borrowed funds from their broker to trade.

TRADE MANAGEMENT

There is the potential for things to go both ways in every business. Either you win or you lose. This is a crucial trading mentality to have; there is the potential to profit as well as the chance to lose.

Risk management refers to the many methods and techniques used to reduce losses and safeguard traders from losing large sums of money. Risk management is critical for both novice and experienced traders. We'll go through some of the strategies to limit risk when trading in the sections below.

The approach used by traders to control earnings and losses during trading is known as risk management. Setting stop loss and take profit points, as well as the risk-to-reward ratio, are all part of risk management.

In risk management, these two strategies are critical.

STOPLOSS/TAKE PROFIT: When we start a trade, we establish a stop loss point to protect ourselves in case the deal does not go our way. When we initiate a trade, we establish take profit points to optimize our profit. We establish our purchase price, stoploss, and take profit points when we initiate a trade. Our goal is to maximize our profit and minimize our loss.

A stop loss order or position is the highest price at which a trader is ready to lose money in any given transaction. In a purchase position, the stop loss is usually below the current price, whereas in a sell transaction, it is usually above the current price. When the market reaches the stop loss price level, the transaction is immediately terminated in order to minimize the trade's loss.

In a purchase situation, a take profit is a position above the current price; in a sell situation, it is a position below the current price. When the price reaches this level, the transaction is closed and the trader collects the profit.

A sell order's stop loss will be above the price and the take profit will be below it, whereas a buy order's take profit will be above the price and the stop loss will be below it. To illustrate this concept, we should not choose price levels for our take profit and stop loss without first calculating the numbers in order to adhere to the risk-reward ratio of 1:1.

Most inexperienced traders just enter figures for Stoploss and Takeprofit, and as a result, they lose money or do not make enough profit since their stop loss may be more than their take profit, violating the 1:1 rule. When our stop loss exceeds our take profit, the setup is incorrect. Either the stop loss and take profit margins are identical, or the take profit margin is greater.

THE RISK/REWARD RATIO: Traders must also define their Risk/Reward ratio while arranging a deal. The risk/reward ratio is defined as the amount of money a trader is prepared to risk in exchange for an expected profit.

The one percent rule argues that traders should be ready to lose no more than one percent of their entire capital in each deal. That is, if a trader has $1,000 in his account, he is willing to lose $10 on a transaction.

Traders, particularly newcomers, are advised to use a risk/reward ratio of 1:1 or 1:2, which means they should be willing to lose one dollar in exchange for the possibility of winning two dollars.

USING THE MOVING AVERAGE TRADING STRATEGY ON ANY CRYPTO TRADING CHARTS TO DEMONSTRATE OUR UNDERSTANDING OF THE RISK MANAGEMENT

I'll use both the Simple Moving Average and the Exponential Moving Average indicator for this experiment. In an uptrending market, the EMA had just crossed above the SMA when the trade was entered. This was an excellent purchase indication.

I chose to set the stop limit and take profit ratio at 1:2, risking one dollar for two dollars, based on the Risk/Reward ratio discussed in class.

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CONCLUSION

Finally, I'll advise that no trader should be greedy since greed may cost you a lot of money. We should always use a 1:1 risk-reward ratio as a novice trader to optimize our take profit and stop loss positions and prevent losing all of our assets. To enter a trade, we may always utilize the buy stop and limit.

Thank you for reading my post.

Cc: @steemcurator02
@yohan2on

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Season 3 | intermediate course class week 8

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you present very good home work,but need more improvement in content,

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