"Perfect Entry" Strategy using Stochastic Oscillator + 200 Simple Moving Average - Crypto Academy/S5W3 - Homework post for @lenonmc21
State in your own words what you understand about the Perfect Entry Strategy (Place at least 2 examples on crypto assets)?
The Perfect Entry strategy as would help a trader know when the direction of a market trend would turn in an opposite direction. This is known as a trend reversal and it can be so catastrophic for a trade if the trader is uninformed or did not foresee such occurrence in the market. Taking a good advantage of the market trend using the perfect entry strategy would help traders make wise decisions on when to open a trade or close it.
It is a common rule of thumb that you buy asset at the point Oversold which is considerably a relative low market price and sell at the point of Overbought which is considerably a relative high market price. But how can we precisely determine the point of Overbought or Oversold in the market - The Perfect Entry strategy is here to help.
The market trend could probably make a turn (reversal) on reaching an Overbought or Oversold level and this is the best time to make a perfect entry into the market.
The Perfect Entry strategy uses two definite indicators as well a some other market indication parameters to precisely predict this turn in the market trend. The first indicator is the Stochastic Oscillator while the other is the Moving Average indicator.
The Stochastic Oscillator indicator is a price momentum sensor that defines an Overbought or Oversold of a crypto asset. This consists of two moving wavy lines along a range channel. The price would be stated as Overbought if the two moving lines crosses the upper border (>80%) and would be seen as an Oversold if the two moving lines falls below the lower border (<20%).
The second complementing indicator is the Moving Average Indicator of 200 periods which gives the average price of an asset over a period of time. This indicator helps traders determine the current market trend and the flow of momentum in the market. The moving average indicator in confluence with the Stochastic Oscillator forms the tool for the Perfect Entry strategy.
To carry out this strategy, one has to determine the overall market trend using the moving average indicator as well as studying the market structure and price action.
The market structure and its correlation to the moving average gives a strong indication of the degree of compliance in the market trend. The market structure should create higher high and higher low in confluence with an Upward directional moving average in a Bullish Trend.
The type of candle sticks formed at the point of entry is also a precision signal. The formation of a small candle stick with wicks towards the opposite of the trend would dictate a weakness in the market trend , that is a struggle to take trend in the opposite direction.
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The Price action, market structure, Candle stick structure, Moving Average of 200 periods and Stochastic Oscillator can all be combined to give an absolute buy or sell signal - making it a perfect entry strategy.
Explain in your own words what candlestick pattern we should expect to execute a market entry using the Perfect Entry Strategy.
The typical Japanese candle sticks could structurally have a body and wicks. The body is a bar that shows the range between the opening price and the closing price. The wick is an extension of the body of the candle stick showing the highest price or lowest price reached.
The Perfect Entry strategy would require a small candlestick with wick in the opposite direction to the trend. The small size of the candlestick shows a small gap between the opening and closing price of the asset within the stated period and the wick shows that there is a strong attempt of opposition to the current trend. This is known as the Trigger Candle.
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When executing the Perfect entry strategy, the trigger candle must be very close to or have the simple moving average line and thus use it as a support or resistance level for a trend reversal. However, we should expect to see a small candlestick that would bounce off the moving average.
Explain the trading entry and exit criteria for buy and sell positions in any cryptocurrency of your choice (Share your own screenshots)
In order to use the perfect entry strategy for an entry or exit, one has to the see a confluence of three criteria.
- The Dominant Market Trend
- The Japanese candles in confluence with the 200 moving average and
- The Stochastic Oscillator indication
Perfect Entry for a Buy Position
The right time to enter a market is at the oversold level. The first criteria is to clearly define the highs and lows of the market trend. Know when you have a high and when you have a low in the market trend. The second criteria is to see the low very close to the 200 moving average with a small candlestick. A wick on the candle stick will show the directional strength of the current market. The third criteria is to have the Stochastic Oscillator lines fall below the lower border, which proves an agreement to the first two criteria.
The criteria 1, 2, and 3 must agree before we make an entry otherwise we would have to wait for another opportunity to resurface. We would place a stop loss just below the Trigger Candle to reduce loss.
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Perfect Entry for a Sell Position
The right time to exit the market or pick profit is when such asset is Overbought. To make a perfect entry, criteria one is to determine the trend of the market. The second criteria is to have an Uptrend very close to the 200 moving average with a small candle and the third criteria is have the two lines of the Stochastic Oscillator over the upper border (80 line). The agreement of these criteria gives a Perfect entry to pick profit
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Practice (Remember to use your own images and put your username)
Trade 2 demo account trades using the “Perfect Entry” strategy for both a “Bullish” and “Bearish” scenario.
The market chart of SOL/USDT at the time of Writing satisfy the criteria for placing a sell a order. The candle stick, the 200 moving average and the Stochastic Oscillator are in agreement for a sell order. With an Overbought signal I sold 500 SOL at 204.73 USDT with an expectation to have a turn downward for a new open signal.
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Conclusion
The perfect entry strategy is helps trader to make a decision on opening a buy or sell Position. This employs the agreement of indication parameters to get a precise signal. The Moving Average of 200 periods and the Stochastic Oscillator indicator are used in confluence with price action and market structure to determine a position.
Best Regards!!
