Hello Steemit:

How are you all, hope you all are doing well. So, today after reading and understanding @yohan2on week 8 lecture on Risk Management in Trading. After the research on risk management and its strategies, I learned many aspects and things that are essential to minimize the loss in trading cryptocurrencies.
Let's start with the answering of given questions,

1- Define the following Trading terminologies;

Buy stop

Buy stop is basically an order which is placed by traders when the market follows an uptrend and the price of the token goes up. The buy stop order is placed above the current market price and when the resistance level is broken, the market will go up and the order will be confirmed. The main thing to be observed is the resistance level. If the market breaks a resistance level then the price will continuously go up.

Let's take an example of TRX/USDT pair. As you clearly see in the graph, when the resistance is break then the market will go up and the buy stop order is placed. I placed an order above the resistance level. It will be helpful for traders and many traders make a good profit after using buy stop.

Screenshot from tradingview.com

Sell stop

Sell stop is basically an order which is placed by traders when the market follows a downtrend and the price of the token goes down. The sell stop order is placed below the current market price and when the support level is broken, the market will go down and the order will be confirmed. The main thing to be observed is the support level. If the market breaks a support level then the price will continuously go down.

Let's take an example of TRX/USDT pair. As you clearly see in the graph, when the support level is break then the market will go down and the sell stop order is placed. I placed an order below the support level. Sell stop order is used to minimizes the loss of traders.

Screenshot from tradingview.com

Buy limit

Buy limit is also an order which is placed when the price of any token decreases so fast. Buy limit order is placed in the bearish market, it will help traders to buy crypto assets at the lowest price when the market is bearish and sell those crypto assets when the market will stabilize. Through buy limit orders, traders maximize their profit in good amounts. Most of the time, the price will increase after reaching the support line so that time is the best for a set buy limit order.

Let's take an example of TRX/USDT pair. As you clearly see in the graph, the price of Tron token will go down rapidly and when it reaches a support level then the market will go up, so it is the best time to set a buy limit order. I placed an order sightly above the support level. Buy limit order is used to maximizes the profit of traders.

Screenshot from tradingview.com

Sell limit

Sell limit is also an order which is placed when the price of any token increases so fast. Sell limit order is placed in the bullish market, it will help traders to sell crypto assets at the highest price when the market is bullish and buy those crypto assets when the market will stabilize. Through sell limit orders, traders maximize their profit by selling their crypto-asset at the highest price. Most of the time, the price will decrease after reaching the peak so that time is the best for a sell your assets.

Let's take an example of TRX/USDT pair. As you clearly see in the graph, the price of Tron token will go up rapidly and when it reaches a resistance level then the market will go down, so it is the best time to set a sell limit order. I placed an order above the resistance level. Sell limit order is used to maximizes the profit of traders.

Screenshot from tradingview.com

Trailing stop loss

The trailing stop is placed in an open position at a specified distance from the current price. The distance is measured in points. The main purpose of trailing stop is to lock any potential profits. If the market keeps moving in the profitable directions, so does the trailing stop, always maintaining the stop loss at a pre-selected point distance from the current price.

If the market stops moving in the profitable directions, the trailing stop keeps the stop loss fixed. If the market goes against the profitable direction, it may eventually reach the stop loss level pre-set by the trailing stop. Once the price reaches this level, the position is closed.

Trailing stops are executed on the platform directly. Trailing stop is activated only when the profit of the position reaches or exceeds the trailing stop levels.

Margin call

Margin call is a notification which alerts you that you need to deposit more money in your trading account or close losing positions to free up margin. A margin call is denoted as a fixed percentage determined by the broker. You can find the margin call percentage in the account specifications of your trading account.

When the market is moving against your open positions and the margin level falls to the margin call percentages, you can expect a receive a margin call warning on your device. In other words, it is a warning for the trader that the stop out level is approaching.
The formula of calculating Margin Level is,

Margin Level = (Equity / Used Margin ) x 100

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

Risk Management In Trading:

Risk is the potential of a bad outcome, including

• Losing Money.
• The underperformance of Assets.
• Failing to achieve your investment / Trading Goals.

Trading Strategy Using Crossover:

Screenshots from Tradingview.com

Crossover is an easy trading strategy in which there are two types of crossover,

• Long
• Short

Crossover means when the two lines collide with each other, at that point crossover is made. If the trend will go up when the crossover is made then that crossover called long. And when the trend will go down after the crossover then that crossover called as short. As you clearly see that last crossover is made in the bearish market and after that crossover market will go up and the price of Zcash coin rising rapidly.

So, that indicated the best time to buy. And when the price will reached at the previous short crossover, so that was the time to take profit and run from the market.

Rules of Risk Management:

Risk Management is comprised of the controls or rules that are put in place to reduce these risks. There are three main rules that make up Risk Management.

Use of Stop Loss:

When entering the market, a trader should know what the potential risks are in advance. Traders should know when to exit a losing market, this means that they will know in advance how much capital they are willing to risk.

Trailing stop loss is the best technique to maximize the profit and minimize the loss. Without the use of stop-loss, traders get a heavy loss in the crypto market because this market is volatile, prices go up and down very quickly.

Position Sizing:

The position sizing is how big your order is going to be. Will it be 1 lot or 0.01 lots?
An important parameter for position sizing is figuring out what your risk per trade is going to be,

• 1%.
• 2%.
• Or higher?

Once you've done that, you can specify the number of pips at risk i.e, the difference in pips between the entry price and the stop loss.

The formula of calculating position size is,

Position Size = Risk per trade / pips at risk.

Trading Capital = 10,000
Risk per trade = 2%
Pips at risk = 30 pips

Position Size = 200 / 0.0030
Position Size = 66,667.

Risk-to-Reward Ratio:

Risk-to-reward ratio means that any potential profits that are directly related to how much you're willing to risk. If you follow a 1 to 3 or 1:3 Risk-to-Reward ratio, then a stop loss of 30 pips implies a profit of 90 pips.

Stop Loss -----> Profit
30 pips ------> 90 pips

Similarly, when following a 1 to 2 or 1:2 Risk-to-Reward ratio, a 30 pips risk implies a 60 pips profit.

Stop Loss -----> Profit
30 pips ------> 60 pips

Conclusion:

Risk management is essential for any crypto trader to minimize the rate of loss in trading any cryptocurrency in any exchange. This will help traders to study and understand more about the growth of any cryptocurrency by calculating and observing the graph.

A good trading strategies plays a vital role to make a good profit. Before investing your money, Risk management is important in any type of trade whether a long term or short term. If a trader use, stop loss, trailing stop loss, buy stop and take-profit prices, then it will reduces the rate of loss in trading.

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This post is plagiarism-free. Hope I answered all the questions correctly. Thank you for reading.

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Special Thanks to,

@yohan2on
@steemcurator01
@steemcurator02