Steemit Crypto Academy | Season 3 Week 8 - Risk Management in Trading / My homework [Esp/Eng]

• Buy stop

It is an order that is placed when the price of an asset has exceeded the current price range, it is generally used in the middle of an uptrend, thus the trader waits for the price to break the resistance level and joins the movement. The most advantageous thing about this type of purchase is that the trader saves time in monitoring the movement. In the following image we can see an example, in which the buyer can execute his purchase when the price has surpassed its resistance zone, which is below 400 USDT.

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• Sell stop

In this case the order is placed below the current price level of the asset, after identifying its support level, contrary to the previous case, traders seek to join the downtrend of the asset. An example can be seen in the following image.

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• Buy limit

It is when a trader places an order to buy an asset below the current price, with the intention of capturing a better price and being able to obtain higher profits when the price recovers. For this, the behavior of the asset must also be identified in order to know at what price the lowest offer can be found within the range in which it moves at that moment and ultimately be able to accumulate more.

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• Sell limit

In this type of order, the trader seeks to profit by placing a sell order above the current price of the asset, after having analyzed its behavior and having established its possible target in the time frame the trader sets to collect profits (short, long or medium term). According to the chart below if I had bought around USDT 380, I would place a sell order around USDT 420 for short term profit taking.

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• Trailing stop loss

It is applied when the price of an asset rises above or falls below a particular point, and consists of adjusting the stop loss of the asset in order to lock in the profits obtained and avoid any loss if there is a reversal of the current trend. It is a way to protect the trade.

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• Margin call

A margin refers to the minimum amount of capital that a trader needs to make a trade, it usually happens in trading that traders pay a certain amount of money to brokers as capital to allow them to participate and it is that amount of money that they deposit that brokers use to offer you a margin.

Then, when an account is detected that does not have a free margin to execute a trade, a margin call occurs to alert the trader and he has the opportunity to make more deposits to participate in the trade.

Example:
If a trader buys a house at $20,000 and for this he uses $10,000 of his own capital and then borrows the other $10,000 from a real estate broker, whose holding margin is hypothetically 35%, then:

Investor's capital = (market value of securities - borrowed funds) / market value of securities.

Investor's equity (%) = (($ 20,000 - $ 10,000) / $ 20,000 )*100= 50%.

This implies that my investor equity was 50% at the time I bought the house. If the price of the house decreases to $ 15,000, then my equity as an investor would also decrease to $ 5,000, then:

($ 15,000 - $ 10,000) / $ 15,000) = $ 5,000. This amount in percentage would be 33%.

So the principal is now below the broker's maintenance margin and this is when the broker becomes active and executes a margin call to the investor to meet the maintenance margin.

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

Risk management is a strategic method that traders use to protect and manage their account to avoid capital losses and maximize their profits. There are many ways to avoid uncontrolled losses, some of them, according to my short experience are the following:

First of all you have to establish a plan of action, in my case, when it comes to trading I have stopped chasing prices and trying to make short term profits, rather I have established a weekly sum of money for "investment" with which I get strong currencies and that I consider have potential such as TRON, SUN, MDX and BRY, but I do not care much about the current price, because my goal is medium term, 3 years. I also apply compound interest by placing them in liquidity pools, everything that is being generated is being added to the pool and thus the number of coins is increasing.

It is important to establish what to buy so that the investment is not lost and also how much and when, the premise of investing what you are not willing to lose, should never be forgotten. In addition, diversifying also protects us from a higher risk, if one of these projects fails, I have 3 more to support it.

As for short term trading I learned to divide the capital to buy in fractions (at least 5), in different zones of purchases given by the support levels identified, for example, by Fibonacchi; as well as to establish Stop loss to avoid significant losses of capital and take profit, because taking profits is also important in the process.

My way of trading in the short term is simple, I use the moving averages of 10 (which closely follows the price) and the 55 (with which I can identify areas of support and resistance), of course everyone uses the method that works best for them, or as in my case, the one they understand best. I am also very attentive to the volume and RSI.

As we can see in the following chart, in general terms we can identify a channel in which the buy zones are the closest to the moving average of 55 (orange color). The take-profit zones are in the upper part of the channel, which are usually resistance zones and as for the stop-loss, it would be below the support zone, it could be 20% below the entry price, depending on the case, the idea is that the benefit is greater than the risk and that it is a loss that we can handle.

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For this type of trading (short term) I like to have at least 5 currencies in my portfolio, so that the risk is distributed in more options.

On the other hand Identifying bearish and bullish divergences between asset price and volume/ RSI seem great to me to identify entry zones, in the time I have been observing them are fulfilled. An increase in price over time, without volume or buying strength, implies a bearish divergence, which tells us that to correct that anomaly the price will be in range or falling. Conversely, if the price goes down without volume, a bullish bounce is most likely to occur.

In summary, trading this way, with staggered purchases that allow me to cost-average the price, in case of a trend reversal, having also the losses controlled by my stop-loss and a portfolio with several solid assets in the market that have to increase over time, in addition to investing time to follow them; makes my experience much more enjoyable.

See you soon

Thank God for every moment of life
and to you for joining me in this reading.

_{The photograph shown is my own, edited in Power Point.
Emojis made with the Bitmoji application.
The separator used was made in PowerPoint.}