CryptoAcademy Season 3 Week 8 Homework Post for (Professor @yohan2on). Trading risk management

lhorgic (76)Beginner[6,7,10]in SteemitCryptoAcademy • 3 years ago (edited)

Learning they say,never end. Am glad am learning something new this time. I want to specially appreciate Prof @yohan2on for his awesome lecture. However I will like to demonstrate my little understanding about the subject below.

Define the following trading terminologies; Buy stop , Sell stop , Buy Limit , Sell limit , Trailling , stop loss and margin call.

Buy Stop.

A buy stop order can be defined as a type of pending order used in a trade to secure long positions. It is carried out by placing a buy command above the current market price and it is best used in a bullish trend. So the idea is, the traders envisages that price is going to go beyond the current market price and then he places a buy stop order above that current price in the hope that price will get to that point and then a buy is initiated.However if price lingers around the current price and refuses to go upward to where the ‘buy stop’ order is placed, the order will remain a pending order witout being initiated.

Key point:

Buy stop order is best used during an uptrend or bullish trend, especially when the trader wants to take buy position in or against an uptrend market movement
Buy stop order is placed above the current market price in a chart
The aim is to benefit from a market movement without missing trade.

Note: Every chart I will be using for this assignment is from previous chart history and not the present hence the shaded part to show before and after.

Sell Stop

A sell stop order is directly the opposite of a buys stop order. It is a type of pending order used to secure a short position. It is carried out by placing a command to sell below the current market price and it is best used in a bearish trend. So the idea is this, the trader envisages a fall in a price and then he places a sell stop order at a particular price level below the current price in the hope that if price gets there or goes below, the order (pending order)it will be triggered or initiated.

Keypoint:

It works best in a down trend or bearish market movement
Sell stoop is placed below the current market price.
The goal is benefit from the market without missing out.

Buy limit

A buy limit order can be defined as a pending order that is used to buy an asset below or lower than the current market price. This is done by placing the order in your chart way below the current price level so that you can actually buy an asset when it has fallen to your taste or to the limit you have set. It is called a pending buy limit order because it is not executed immediately, it remains pending until price falls to where you placed your limit. Only then can the order be triggered and initiated.

A practical example is this, lets assume the price of Naira is currently 200 and David is interested in buying it for 180, David will have to wait for it to fall to that point before he can buy at that point, what he will have to do is to place a limit buy order at price 180 which is presently below 200 (current) price.

An example from a chart

Key points:

It’s a pending buy limit order
It is set/placed below the current price of an asset
The underlying assumption is to initiate a buy when a price falls to your desired price level.

Sell limit

A sell limit can be defined as a pending that is used to sell an asset above the current price level, this is done by placing your chart way above the current price level so that you can actually sell at a better price. It therefore means your limit order remains pending and not triggered nor initiated until price breaks above the current market price.

A practical example is the continuation of the illustration we used above. Lets assume David wants to sell an asset at 200 but the current market price Is 180 which is lower than the current market price for David to enter this trade he has to use a sell limit order and set his entry at 200. His trade will be triggered when price moves from 180 to 200.

Example from a chart

Keypoints:

It’s a pending sell limit order
It is set/placed above the current market price
The underlying assumption is to enter by selling when price rise appreciable

Trailing

A trailing stop is a peculiar kind of stop loss order that move in line along side with market price even as it changes. Trailing stop is used to follow price as it moves, the trailing stops moving when price also pegs but the good thing about the trailing stop is that you can keep locking up profit even as price moves in your favour. This trailing stops is also set below the market price. When using this trading strategy, a trader can last in a trade for a very long time as long as the trade keeps moving in his favour but if otherwise, the trade closes by itself since a stop loss has been set to control the activity of the trader. However a trade shouldn’t over use this strategy as he or she might be subjected to excessive commission by broker for long trading.

For example. Lets assume you set a 20 pips trailing stop on EURO/USD on an asset you bought for 2.1440. this means if the price rises to 2.1480 and beyong, your stop (trailer) will rise from where it was before to its new position following which will be 2.1460 based on your 20pips movement and keeps moving like that until there is a negative 20pips movement against you which will automatically close the trade.

Margin call

This can be defines as a form of notification from a broker to a trader telling the trader that t he or she need to make more deposit to continue trading a particular position otherwise the trade will be closed. This usually happens when the market moves negatively against the trader.

For example.

A trader has an account size of 100 dollars and his he is trading with a leverage of 1; 100, which means the trader has to make a goodwill deposit of 10 dollars to his broker to open a position size of 1000unit /micro lot. The trader open a buy position with one micro lot and deposited 10 dallars to his margin account to open the trade have a balance of 90 dollars to take in the profit/loss of the trade. If the trade goes agianst the trader and he loss 90 dollars of his balance, he will receive a notification from his broker that his trade has been automatically closed because the balance in his account can no longer cover for his loses.

Risk management.

Risk management can be define is the measure put in place to have balanced kind of trade where you make profit moderately and don’t run into excessive loss. The idea behind risk management is that you don’t blow up your account in the course of trading especially when you are a newbie, this will kick you out of trading against your will. This is done by putting certain measure in place such as setting a moderate risk. Let check out some measures below

1% Trading Rule

As a trader you have to gain control over your emotion lest you will be swayed away by the behavior of the market, one could even find one’s self being excessively greedy which could turn out to be ones undoing. Always ensure you set your risk at a percentage that you can comfortably lose. An ideal percentage risk is the 1% which mean if you have a $1000 capital, your risk according to 1% is 10 dollars. This helps to control your risk and minimize it while trading.

Stop loss

Stop loss is a trading strategy that aims at reducing loss to the bearest minimum. As trader, loss is inevitable expecially when one is new into the system. That is why this strategy is key so that one will not blow his or her account and then kicked out of the game. Your stop loss size is very important when trading, you shouldn’t be risking more than your account size, you should be careful when setting your risk, although some asset can greatly influence the size of what would have love to risk normaly, however you shouldn’t trade blindly take calculated risk.

Take profit.

Trader are to understand when to take profit and not to allow greed have the best of them, some traders will expect that price will keep going on without considering the fact that price there could be a downturn due to market behavior and the law of demand and supply. It is important to set a particular profit target which you should hit and then exit the market. However an ideal reward ratio should be 1:2 or 1:3 which implies double reward and triple reward respectively. Anything beyond this could mean you’re tending towards the direction of greed

Here is a demontration

Conclusion.

Learning the dynamics of placing order in for trades will help go along way in making a trader successful in his trading adventure.

Thanks to pro @yahanon2 for this class. It has made me streched beyond what I used to know about technical analysis and am glad I did it. I want to also say that I stand to be corrected as I'm just a beginner trying to gain root in the trading system.

Thanks so much for your time.

Cc: yohan2on

#yohan2on-s3week8 #trading #riskmanagement #nigeria

3 years ago in SteemitCryptoAcademy by lhorgic (76)Beginner[6,7,10]

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yohan2on (74) 3 years ago

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This is good content. Well done with your practical study on Risk management.

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