Steemit Crypto Academy Contest / S7W3 - Understanding Crypto Trading.

Hi steemians,
Welcome to week 3 of the steemit engagement challenge season 7. It's a pleasure on my part to be among those participating in this week's engagement challenge again. It is important to mention here that this will be my entry number 3 in this week's engagement challenge and I do hope to show my full participation by answering the questions given in the task.

Understanding crypto trading is very essential, especially for crypto lovers. Everyone who has cryptocurrencies should have a little knowledge of how crypto trading is done. There are lots of areas associated with trading and in this contest, we will be looking at some of them. Without further ado, let's get started.

Trading in a simple sense has to do with buying and selling goods and services as well as other forms of commodities. Trading is a situation where those concerned tend to make a profit by buying something at a low price and selling it at a high price. In essence, when we talk about the term trading we are referring to buying and selling.

Cryptocurrency trading is the act of buying and selling digital currencies such as Bitcoin, Steem, Tron etc. This type of trading is done via an exchange platform which acts as an intermediary between the buyer of the asset and the seller of the asset. The essence of crypto trading is to make a profit.

It is important to mention here that crypto trading is done properly when those concerned have some basic knowledge which includes understanding the market trends, knowing the risk management strategies and having some knowledge of technical analysis to help you understand the movement of the asset base on demand and supply.

To make a profit in crypto trading, those concerned have to take advantage of the price fluctuation I.e buy low and sell high. We all know that crypto prices are volatile and for that reason, the price of assets is never stable as it goes up and down. So a good crypto trader tends to buy his asset when the price is low and then sell it when the price is high to minimise loss and maximise profit.

Furthermore, it is also important to state here that crypto trading can be very rewarding and at the same time it can be very risky. A coin can raise from $2 to about $30 within some minutes or an hour as the case may be and it is still possible for a coin to drop from $30 to about $0.12. This implies that you can become a millionaire within a few minutes or hours while trading crypto and also you can lose millions trading crypto.

Crypto trading is done on both traditional exchange and decentralized exchange. When we talk about traditional or centralised exchange we are referring to an exchange that is been regulated by a body or the government of a nation whereas the decentralized exchange is an exchange that has no central control as it works purely on written instructions or smart contracts.

There are many trading principles to always keep in mind as a crypto trader in other to be successful in your crypto journey. Being successful doesn't mean you will always make a profit but being able to minimise the risk and maximise the profit is what being successful is all about. Some of the trading principles include;

Risk Management:One of the most important trading principle that every trader needs to take into consideration is risk management. Here, a trader is expected to manage his loss by setting a proper stop loss and take profit level. We are not supposed to leave our trade open without putting boundaries as to how far they should go. In essence, crypto traders should always keep this in mind.

Diversification of Portfolio: Diversification of portfolio simply means not investing all your capital in the same coin instead you should have different coins which have great potential for increase. In this type of situation, once one coin is falling, others may be raising and it will still keep you on track but if you don't diversify, you may have a heart attack when the said coin you invested in is falling.

Understanding the market trend: The market trend is something every trader should understand in other to be successful in their trading. Market trend talks about the movement of the market in a particular direction be it an uptrend or downtrend. With good knowledge of the market trend, you will not be caught in canter trading I.e trading against the trend. For example, a market just started a bullish move which indicates buying pressure and as a trader, you begin to sell at a loss.

Make your research: Before you will think of investing in anything related to cryptocurrency, it is recommended that you make proper research about the crypto asset or the company which is the medium through which the trading is carried out. There are many fraudulent people out there looking for who to steal from and hence with proper research you won't be prey to those criminals.

Emotion control: It is not recommended to trade with your emotion alongside. When you are having doubt and you are not certain of the movement, just don't go into trade. Your emotions and feelings shouldn't be joined to your trading in that way you can be a successful trader.

Every trader can build his/her trading strategy. In my case, what I do first is study the historical movement of the coin in question I.e reading through the ATH and ATL of the said coins and the factors responsible for it. Aside from that, I go into the technical analysis to see the repeated movement pattern of the coin. With these, I will be able to predict the movement whenever I see a similar pattern.

Aside from that I also ensure I understand the trend movement properly and I use technical indicators like the RSI to know when the asset is in its overbought or oversold region which will imply trend reversal to an opposite direction. If the indicators shows oversold, it means the trend will soon reverse and move upward and the same goes to overbought.

For any trader to be successful in his/her trading, the knowledge of fundamental analysis is needed. Every trade deals with an asset and the work of fundamental analysis are to help traders to study the entire background of the asset they wish to invest in. You will agree with me that there are thousands of crypto coins in circulation today and all of them have their motives and purpose of creation.

Before a trader or an investor puts his money into such an asset, it is only wise that he/she studies the background of the coins and sees how reliable the said coin is. In fundamental analysis, you must take into consideration the founders of the asset, the reason for creating the asset, what is the economic benefit of the asset and whether or not the asset is for long-term investment or short-term.

With fundamental analysis, traders will be able to know if the project supporting the asset or token is genuine or not. When you see a good project backing a token, as a trader you will know that the coin in question can stand the test of time. So any coin that is used mostly as payment in a big platform is a good coin to invest in since the company in question is reputable. An example is the Binance Coin (BNB) used in the Binance platform.

Seeing how the usage of the coin and the project behind the coin, you will be certain that the coin will stand the test of time hence it is a token that can be invested on. BNB can be used for staking, paying a gas fee etc within binance and outside the exchange.

Aside from fundamental analysis which is the number one thing to be considered when trading cryptocurrency, the next thing one should consider is technical analysis. The knowledge of technical analysis is very important when it comes to trading because this is where we will apply risk management, know the trend, make use of technical charts, and technical indicators and also study the pattern of the chart.

I have said earlier that risk management means setting up your trader to have a stop loss and a take profit point. When you are carrying out technical analysis, you should be able to set up your trade in such a way that it should not exceed a certain level else your entire asset may get liquidated when the trade goes against your plans.

Knowing your trend is also very important when trading. The trend can be an uptrend, downtrend or sideways movement. With the help of your trend-directional movement, you will be able to know when to place a buy order and a sell order.

There are many technical charts available and the most used include the candle stick chart, bars, Heikin Ashi, Line, Column, Baseline etc. From the chart below, I have to use the candle stick as an example for all to see. As you can also see that the pattern of movement is not straightforward. The prices go up and down showing the volatility of the asset.

Technical indicators are very important even as explained above, with technical indicators, you will know when there will be likely reversal periods in the trend an example is when we make use of the RSI indicator. When the indicator gets to the over ought region, then the possibility of the trend reversing to the opposite direction will be high. In the same way, when the indicator gets to the oversold region, the possibility of reversal will be high as well.

From the illustrations, I have given, once you have traders should be able to understand what technical analysis is all about. Note that knowing technical analysis is not a guarantee that the trade will always go in your favour. Sometimes the market may not go as predicted but you always have an idea as to how the market works.

As a new trader, the 3 concepts I feel you should know and also bear in mind while trading are as follows;

Stop loss/Take profit: As a new trader, you should understand the concept of SL and TP. Here you have to set a level to the amount of profit you intend to make in the cause of your trade and also set up a limit to the amount you wish to lose in your trade. We are aware that the movement doesn't move continuously upward or downward or even sideways hence we need a limit to make a profit and loss as well. So this concept is quite important to all traders.

Asset diversification: As I have said before, let's not gather all our eggs in one basket and that is the main reason why we need to diversify the asset we want to hold. This is to help us stand strong if one of the assets is going down the other can cover up for the lapses. So to new traders always make proper research and ensure you don't rely on just one crypto have a portfolio with assets that have potential.

Have a strategy: As a new trader, you must have a trading strategy and always work with the strategy because with much practice with the same strategy you will be more familiar with it. So develop your trading strategy and work to improve it. When you perform a particular trade using the strategy, look at the lapses which made it not successful and work on it when you trade the next time you wi notice an improvement and with that practice often that pattern will become well-known to you.

Crypto trading simply means the act of buying and selling crypto assets via an exchange platform. To be able to trade crypto effectively, you must have basic knowledge of fundamental and technical analysis. It is also important to mention here that crypto trading is highly volatile hence predicting its movement is not accurate. Traders should always invest what they can afford to lose and in that way, they will not end up with a heart attack.

I want finally invite a few friends to also come and participate in this contest today. I call on @ubongudofot, @nahela, @fantvwiki, @waterjoe and @ngoenyi to join the contest and share their opinion about the topic under review.