Basics to trade cryptocurrencies correctly. | Part 2 - Crypto Academy / S6W3 - Homework post for nane15

Hello everyone. I welcome you all in another week of this protracted educational series. This week, respected professor @nane15 has taught us about Basics to trade cryptocurrencies correctly. This is my homework task.

The crypto market is very versatile. The prices of the coins keep changing every minute, second, day,... We have to be aware about the price to trade successfully. Not just this, the analysis of the market is quite important in order to earn profit and safe from risk of losing money. The analysis help us to predict the market future. The market can move in any direction at any time. It all depends upon the traders behavior and their attitude. So analysis help us to analyze what will be the future price of coin, where the market will move next, market future structure, etc. The analysis helps us to take important trading decisions. We decide what to do next in market by using the results of analysis.

There are two type of analysis; Fundamental analysis and technical analysis. The fundamental analysis do not use the price history data to predict the future. This type of Analysis is the key method to analyze the crypto market. This method is focus on the financial and economic events to analyze the market. A lot of the other factors like the project goals, the team objective, the government policies related to the crypto coins are also matter. The traders analyze the crypto market by focusing on all the above mentioned factors.

The other type of analysis is the technical analysis. The technical analysis is perform by believing on the fact that the the history repeat itself. What happen in past will happen again in future. The market price fluctuate because traders trade using emotions and sentiments. The traders repeat their attitude. By believing on this phenomenon, the traders perform technical analysis. They use the historical data of price to predict the market future direction. This method considered more good, easy to use and effective in results. There are multiple tools use in the technical analysis. Below are some discussed in detail. So let's start.

Chart

The chart is use for the graphical representation of any thing in real world. In crypto market, the chart are use for the market data representation. The chart give us a clear price structure understanding and tell us about movement and trends of market. Chart is very useful to predict the future of market by utilizing the current and past price. This type of representation have two dimensions to represent the market data. The charts also help us to understand the demand and support of an asset which get change because of the behavior of traders. The traders can take the important trading decisions by analyzing the market through the charts.

The charts use the historical price data and present price data to analyze the future price of market. The market price fluctuate because traders trade using emotions and sentiments. The traders repeat their attitude. So the history repeat itself. The traders, that's why use the historical data of price to predict the market future direction. The chart not just predict the future, but also help the traders to get the best entry and exit spots. The traders can identify the best price point to enter into the market and to exit from the market. In this way, the enter and leave market at appropriate time and earn more profit.

There are multiple types of the chart which we use in the crypto market like Heikin Ashi chart, Line chart, Bar chart, Candle stick chart, etc.

(i) Line chart

The Line chart is the graphical representation of the price of the crypto currencies over a specified period of time. This chart has only a single oscillating line which is use to indicate the movement of the price of coin in a specific time period. The closing price of the coin for a specific time period is use to plot the line chart. So we can say that that the Line chart is the graphical representation of the closing price of the asset over a specific period of time. The time period can be in seconds, minutes, hours, etc

The line chart is drawn using the price data of asset on the vertical x-axis and the time on the horizontal x-axis. This chart give us a very clear and noise free representation of the assets price because a single line is use for price representation which filter out the noise generated from the ups and down movement of price.

As compare to the other charts like candlestick chart, bar chart which use the opening price, high price, low price, etc to represent the market structure, The line chart use the closing price of the asset to represent the price movement using a single oscillating line, which make it easy for even beginners to use it in their their trading. Because only the closing price is used, the line chart is very easy to interpret.

Candle Stick Charts

The candle stick chart is a tool to analyze the market. This tool was introduce in 1990 By the Japanese farmer. This tool is used in technical analyzes to analyze the market trend. This is most common and mostly used indicator by the traders. The traders use this tool to get the idea about the market trend and to take the trading decisions.

This tool help you to analyze the market using the candles on the chart. The candles are by default are two colors; green which represent the bullish trend and the red which represent the bearish trend. When you see that the green candles are there more in the market, its mean that the demand of the coin is rising and price is increasing. But on the other hand if you see the red color in the chart more, its mean that the market is declining and price is decreasing.

This chart use the demand and supply rule to analyze the market. If the demand rise, the price of the coin will increase then and the supply which is inversely proportional to the demand will decrease. In this case, you will see the green color candles which mean that the market is in bullish trend.

But when the supply increase, the price and demand of the coin decrease then. In that case, the red color candles are seen more on the chart which mean that the market is falling down. On the chart, support and resistance level help the trader to determine where the market is trending. If the wick line is below, it show the support level and if wick line is above, it show the resistance level.

The Japanese candle stick chart not just help you to determine the market future but also help you to get to know about the closing and opening price of the coin for a specific time period. The traders get to know much more about the market just seeing the candle stick chart. It is an easy way to analyze the market because the traders do not need to face any sort of complication. This tool help a lot in a successful trading journey.

The bullish trend is a good spot to sell the coin because the price is high here and traders get good profit by selling their hold coins. If the market is in bearish trend, then the traders should buy the coin because the coin price is low in bearish trend. So traders get an entry into the market by seeing the market is in bearish trend on the chart. This chart give you information about the closing, opening, highest , lowest, support and resistance level.

Source

• Low- It shows the lowest price of the asset in a specific time duration

• High- It show the highest price of the coin in a specific time duration.

• Open- Opening price of the asset

• Close- Closing price of the asset

• Wick- The point where the price start fluctuating. If wick line is below, it mean that the market is in downtrend and if the wick line is above, it mean that the market is uptrend

Timeframes

The price chart consist of two main elements, the price data and time frame. The time frame is the time interval to define the price movement in a certain time period. The time frame define the movement of the price of a coin within a specified period of time. The time frame is the key element of the chart which is the time interval in which a trading event, activity is took place in the crypto world.

Each candle on the chart define a specific time period which have been chosen. For example for the time frame of 1 month, each candle will represent the whole month. The price data of whole month will be represented by a single candle. If will represent the whole price actions, movements and activities done within the one month. If the time frame is set as 1 hour, then each candle will have the time period ofhour. 24 candles on the chart will then represent the 1 day price data.



The time frame is very important elemen t. The time frame can be set as 1 year, month, week, day, hour even minutes. In the below chart, i have set the time frame as 1 week. Each candle will show the activities and the price actions at the end of the week. If i select the 20 candles, it mean that these twenty candles will give us the data of last 20 weeks. Each candle will give us the data event occurrence on the weekly base.

The time frame is helps the traders to get to know about the market activities and price data of the coin within specific time period. If the traders want to get the overview of the price data on daily base, he can set the time frame as 1 day. Then each candle will show the detail of price data of one day. If we want to get the micro information of the price data, we can swicth the time frame from 1 day to 4 hour, 3 hours, 2 hours, 1 hours and even in minutes.

In the below screen chart, the 1 hour time frame is set. We can see the more micro detail of the price data by setting the time frame to this level. But we can see that the last candle is not yet completed. It mean that i will show us the detail data of price and interaction of traders after one hour.

The support and the resistance are the important price levels where the selling pressure and buying pressure is visible and price of the assets is expected to move back to its previous original direction. The buying and selling pressure get generated because of aggregation of the particular sort of the orders at these points/levels. The number of the times, the price reacted around these price levels before is use to determine how strong the support and resistance level is.

• Resistance Level Identification

The resistance level is an area where the price stop increasing up further, the buying pressure expected to pause and price is expected to bounce back. At this level, the sellers enter into the market and stop price increasing more, a lot of pending selling orders get executed because of which, price start moving in opposite direction and trend get reverse. This is the level where the buying pressure pause, the selling pressure increase which prevent the price to move further in upward direction. Because of consolidation of a large number of selling orders at the resistance level, the price bounce back resulting in trend reversal.

Breaking the resistance level in possible only with large number of the buying orders. When the buying pressure get high, price increase and the bullish movement start. The traders should take the important trading decisions at time of breakout of resistance level.

The strength of the resistance level depend on the time frame within which the resistance level identified. When the resistance level identified for short time period, it is usually unaffected. But when the resistance level is identified for large time frame, it is more effected.

The support is an area where the price stop decreasing up further, the selling pressure expected to pause and price is expected to bounce back. At this level, the selling pressure get exhausted and the buyers enter into the market and stop price decreasing more, a lot of pending buying orders get executed because of which, price start moving in upward direction and trend get reverse. This is the level where the selling pressure pause, the buying pressure increase which prevent the price to move further in downward direction. Because of consolidation of a large number of buying orders at the support level, the price bounce back resulting in trend reversal.

Breaking the resistance level in possible only with large number of the selling orders. When the selling pressure get high, price decrease and the bearish movement start. The support level get break then. The traders should take the important trading decisions at time of breakout of resistance level.

The strength of the support level depend on the time frame within which the support level identified. When the support level identified for short time period, it is usually unaffected. But when the resistance level is identified for large time frame, it is more effected.

• Key points for identification of support and resistance level

• To identify the support and resistance level, we should have a clear chart.

• Zone examine the price of the coin on the chart carefully.

• Draw the resistance and support line on the area where the price of the coin has been bounced back for multiple time, at least for three time.

• When the candle or wick of candle hit the support and resistance level, it get bounce backed and this is important point for traders to take trading decision.

The resistance and support are the best level where the traders can take best trading decisions to enhance their profit and decrease the lose ratio. There are basically three types of the support and resistance level in the crypto market which can be used for this regard.

• Horizontal support and resistance
• Dynamic support and resistance.
• Sloppy support and Resistance

Horizontal Support and Resistance

The horizontal support and resistance level is the most common type of the support and resistance used in the crypto world. The traders mostly use this type of the support and resistance zone to take the trading decisions. It is formed in form of a horizontal line on the chart. The support and resistance levels are drawn as a horizontal line. When price bounce back several time while moving up, the resistance level is drawn there. When price bounce back upward while moving downward, the support level drawn there.

Sloppy Support and Resistance

The sloppy support and resistance level is another type of the resistance and support level which is drawn as a trendline in a sloppy way. The line is drawn which move as a slope with the movement of the price on the chart.

• Sloppy Support

The sloppy support line is drawn when the coin is rising upward. When the price is increasing while forming the higher highs and higher lows where each high is higher than previous high, the sloppy support line is drawn by joining the high lows. At least two to three lows should be connected or hit the sloppy support line.

• Sloppy resistance

The sloppy resistance line is drawn when the coin is declining downward. When the price is decreasing while forming the lower lows where each low is lower than previous low, the resistance sloppy line is drawn by joining the low highs. At least two to three low highs should be connected or hit the sloppy resistance line.

Dynamic Support and Resistance

This is another very useful support and resistance type which help to understand the market structure and to get the best entry or exit spots. This type of support and reversal give us the major points where the price reversal or pull back is expected. The price can be reverse or pull back at the dynamic support and resistance level.

Here the traders now do not need to draw the support and resistance level as they were drawing in the previous types. They can use any suitable technical tools to determine the support and resistance level. We can use the Super trend, MA, EMA, etc.

I have used the MA 50 to identify the dynamic support and resistance level. For an uptrend, the price is expected to move above the moving average. In this case, the MA act as the dynamic support. The price bounce back to upward whenever it hit the dynamic support. Thus the price continue to move upward .

For a downtrend, i again used the moving average 50. For a downtrend, price is suppose to move below the Moving average. The price move below the moving average and the line of moving average serve as the dynamic resistance. Whenever the price hit the dynamic resistance, it pull back to downward. Thus downtrend continue.

Fibonacci Retracement

The Fibonacci Retracement is a technical tool. This tool is use on the chart to get the point reversal points. The points when the price reversal is expected is get to know through the Fibonacci Retracement tool. This tool is use in the support and resistance zones. This tools help to find the trend reversal spots and traders can utilize these spots to take important trading decisions. The Fibonacci retracement tool have multiple levels like 23.6%, 38.2%, 50% 61.8%, 78.6% 100%

When we draw the fibonacci in the bullish trend, it helps the traders to get the support levsl. The traders then are able to enter into the market at support level and can get the high profit. For this, we have to apply first the fibonacci on the chart in such a way that, put the one point at the last low and then drag it to the next high. You will get the fibonacci retracement tool on your chart which will help the traders to get the support levels.

And if you want to apply it on the bearish trend where market is falling while forming the lower lows, then we can draw the fibonnaci from the previous high to the next low. The Fibbonacci move in zig zag pattern.

Round number

Rounds number in the crypto world are the crypt prices which are represented in form of 1456.0, 123,5, etc. The Round numbers can be use to identifying the key areas and reversal levels of price on the chart. The traders can get the reversal areas by using the round numbers. These round numbers are very useful in identification of the reversal areas and key points especially while placing the stoploss and take profit. These make greater order for presentation of the round numbers. The stop lose and take price are the positions which cause the market reversal to occur.

This is a pereption in the crypto world that the crypto prices usually react to the rounded prices. That's why the traders have very critical eye on these prices and they execute their orders at these price levels.

In the above screen short, we can see how the price reacted at the round numbers on the chart.

High Volume

The volume is a technical indicator which is use in the crypto market to determine the price volatility. This is very important indicator which the traders use in the market to measure the volatility in the prices. The volume indicator is shown at the lower side of the chart. This indicator consist of the candles which are red and green in color.

The volume indicator is very important to determine the momentum before placing the orders in the accumulation and distribution phase. When there is accumulation and distribution phase, the candles remain calm with low volume and short bodies. The low bodies candle indicate that there is not the high volatility in the market. In accumulation and distribution, usually the volatility remains low. When the price get reverse, there is high volume shown on the volume indicator. This indicate that there is high volatility. The volume get increase which push the price to move in the opposite direction.

In the above screen short, we can see that in distribution phase, the volatility was low. It was identified by the low bodies candle of the volume indicator. The short bodies candles showing that market is moving in ranging zone. The market currently have no actual direction and bouncing within the resistance and support level.

But when the distribution phase got end, a high volume is shown on the volume indicator which indicate that the market is going to move in a particular direction. The red candle indicate that the market is going to move in bearish trend. And the green candles indicate the bullish reversal and buying opportunity.

Accumulation & Distribution phase

There are basically two trend in the market, uptrend and downtrend. These two trends occur because of the accumulation and distribution phase. The accumulation and distribution phase are the phases when the price of coin move in ranging zone before trending in a particular direction. The Accumulation phase can be seen at the bottom of chart which occur after a bearish trend and after the sells of the large investors for their own profits. The price of coin is low at the accumulation phase.

This phase is actually because of the whales and big hands who want to use the small traders to raise the price up so that they can earn the profit of their own will. They first start buying the coins to create the bullish reversal signals. The small traders find it a good spot to enter into the market. They start buying because of which the demand get high and supply get decrease. Because of this, a high volatility of bullish trend is shown on the volume indicator.

The distribution phase can be seen at the top of chart which occur after a long bullish trend and represent the area of selling interests. The price of coin is high at the distribution phase.

The price pause and start moving in ranging zone. There is no particular direction of price because of the selling interests. The low bodies candles are seen on the volume indicator indicating the low momentum and low volatility. But when the sellers start selling the coins, the volatility get increase because of high selling pressure. The price start declining at the consequence.

The resistance and the support levels are the critical and difficult spots for the traders because they have to decide whether to stay in the market or not. Because when the price is at the resistance level, the traders think to sell it before price start moving toward bearish trend. When the price hit the support level, it can rise again or will break the support level and decline more. When the price break the support and resistance level, the breakout occur. The breakout is the trend reversal spot which is best spot to take the trading decisions that either should enter into the market or should leave from market. But before making any trading decision, one should make it clear that the breakout is successful and not the false. For this we use the rebound to make sure a breakout occurrence.

In the above chart, we can see that price was moving in ranging zone. But then, the price broke the support level and started moving below. The traders might take it a breakout and good spot to exit from market but before that, we should confirm that the breakout is false or true. In the above screen short, we can see that price again raised up to test the support level. This is the rebound which confirm the occurrence of breakout. The price is expected to fall more after the rebound. After confirmation of the breakout, now we can place the sell orders. But if the price do not retest the support level and rebound do not occur, the breakout is consider false. We should make any trading decision in such cases. Instead, we should wait for next breakout.

When the price break the support or resistance level and expected to move in opposite direction. But when it again start moving in the previous direction, the false breakout occur. The false breakouts are occurred because of the moves of the whales and big hand investors when they want to make their own benefit by trapping the small traders.

The following is the false breakout occurrence where the price broke the support level and started moving downward direction. The downtrend was expected and coin was assumed to move in direction of breakout. But the coin started moving opposite direction to the breakout and continue its previous movement direction. This was the false breakout

Below is another false breakout which i have been found on the chart of a coin. The price was in the uptrend. The coin price was moving between the resistance and support level. Then the price broke the resistance but came back again to downward and started moving in ranging zone. Then it broke the support and move downward.

Bullish Trend

Bearish Trend

I am going to explain multiple way of placing the entry and exit orders using the demand and supply law.

Final retracement following Elliot waves(a, b, c).

To apply this method and to place the order at the end of the retracement, we have to wait for the trend to end. Then we will drawn the a, b and c which will show the end of the trend. This imply that the current trend is almost end. Now we can place the order before even start of the next trend.

Then we will set the order at the break of wave by setting the stop lose and take profit. The stop lose is set below the low of wave a. .

Pull back Entry

When the market is trending upward, some higher highs and high lows are formed where each high is higher than previous high. We have two waves in the uptrending market; one is Impulsive wave and other is retracement wave. The impulsive wave is which move in the direction of the market trend, mean trending upward and forming higher highs. The other is retracement which move opposite to the current trend, mean form high lows. The retracement wave is always a best opportunity for traders to enter into the market. The traders should place the orders before the next impulsive wave start to form.

We can see that at time of the retracement, there is low volume. It mean volatility is not that much high. But at time of the impulsive wave, there is very high volume.

When price start reversing back to the direction of trend after the retracement wave, we should enter into the market by setting the stop lose and take profit. The ratio of stop lose and take profit can be be 1:2, or 1:3 or 1:4 or up to the traders will.

Entry after Market Trap

The false breakout is actually a market trap which is netted by the big traders to trap the small traders. We can get the benefit from these market traps too. The market trap is the price level where the price break the support or resistance level and start moving in a particular direction. But after a small time period, the price again start moving close to the support or resistance level and even cross these levels. We should place the order in these market trap situations.

When price start reversing back to the direction of previous trend after the market trap, we should enter into the market by setting the stop lose and take profit. The ratio of stop lose and take profit can be be 1:2, or 1:3 or 1:4 or up to the traders will.

Below is the chart where i have been placed the order using the pullback method. The coin is trending upward while making the higher highs. When the market is trending upward, some higher highs and high lows are formed where each high is higher than previous high. We have two waves in the uptrending market; one is Impulsive wave and other is retracement wave.

The impulsive wave is which move in the direction of the market trend, mean trending upward and forming higher highs. Whenever the coin will move upward to form a higher high, it will be the impulsive wave. The other is retracement which move opposite to the current trend, mean form high lows. The retracement wave is always a best opportunity for traders to enter into the market. So i will place the buy order here to take the advantage of the uptrend. For that, when the retracement wave end and coin again started rising, i waited for some moment and then placed my buy order. I set the stop lose, take profit and execute my order.

Below is my order detail.

The chart is the graphical representation of the price data in crypto market. I have explained the types of chart in detail. The chart is extremely useful technical tool for analysis of coin. I have also explained the timeframe concept in detail.

Then the support and resistance level are being discussed. The support and resistance are two very important and main points to make the trading decisions. But we should be very careful about the breakout because sometime they may be the false breakouts. I have explained the rebound to solve the false breakout problem. I am thankful to professor @nane15 for this amazing lecture.