Starting Crypto Trading
Hello everyone!
I arrive this time with my homework for professor @dansontela , this week he touches on a very interesting topic about basic things to understand in order to start trading, I think his class was very interesting and complete, so I will leave my entry for him On this occasion, I hope it will be a pleasant read for whoever gets here, I begin.
1.- In your own words, what is fundamental analysis? Do you think it is important for a trader? Justify the answer.
I would like to start this answer with a famous quote from one of the fathers of fundamental analysis.
"The investor's main problem, and even his worst enemy, is probably himself" Benjamin Graham.
In short, fundamental analysis is based on the investor's own intelligence and control to make decisions in a market. Fundamental analysis is constantly linked to sentiment or sentiment analysis, this is because generally one of the things that is studied in the market through fundamental analysis is its sentiment, at least an estimate, given that it is impossible to understand the sentiment of the market.
Based on this previous and brief explanation, we can more easily understand the following: Fundamental analysis is based on the study of values in certain markets through the observation of events or events that revolve around it. This in order to predict the price, or rather use a combination of intelligence and insight to determine the price that a value will have.
To say that it is important is quite little, based on the same initial quote we can understand that the financial intelligence of the investor and the fundamental analysis go hand in hand, thanks to the constant study of the markets we can invest correctly, avoiding mistakes. , thought like the professional, if we do not carry out fundamental analysis, it is difficult for us to know how the market behaves, it is impossible to determine if an asset has a true value, we would be simple speculators, but without any grace other than luck.
Those who constantly observe the price, behavior, and news around a market, such as banks, companies or investment funds, are always the first to find out about the price (and this many times because they tend to be the ones who determine it by injecting large amounts of money in them) all thanks to the fundamental analysis and partly of sentiments in a market. Without it, it will be very difficult for us to achieve great long-term profits.
2.- Explain what you understand by technical analysis and show the differences with fundamental analysis.
Technical analysis or so-called chartism is a way of determining prices like fundamental analysis, however it has been somewhat marginalized since its inception and it was not until the end of the 20th century that it began to be more widely used by the investment community.
This is because the idea behind technical analysis is based on the study of historical price patterns in the market to determine its future prices. This at the beginning was very controversial since the idea that the prices in a market would repeat themselves was very little accepted, however today we know that it is a reality, in addition to the study of the volume and price action in a market helps us understand it better.
One of the fathers of technical analysis and who I think has given us one of the most interesting theories to understand it was Richard Wyckoff through "The Wyckoff method" who proposed that a financial asset can be understood through 3 main phases:
Accumulation. Where an asset moves sideways at the bottom of a chart, with high volume levels, this tells us that the big players in the trade are buying large amounts cheaply to put them on hold.
Distribution. The asset goes through a sideways phase on the chart again, this time at the top, also with high volume levels, here the big players are selling the previously purchased assets at a higher price and making a profit.
Trend Bullish or bearish phase where the market enters a strong sentiment that motivates small investors to strongly buy or sell an asset and increase or decrease its price.
With this analysis it is easy to determine important levels on the chart, trends and even optimal points to establish buy or sell and their respective exit orders.
Based on these ideas we can understand that technical analysis is nothing more than the study of the historical price and volume of a market in order to draw graphs and patterns that help us determine possible future movements or trends on which to trade.
The differences between fundamental and technical analysis are based on the perspective taken to determine the price of the market, let's say the method.
With fundamental analysis you try to understand the value of an asset through the events, events and support or boom around an asset, with technical analysis you try to determine future prices through the study of past prices.
With the fundamental analysis it is easier to determine in which project to invest, with the technician it is easier to determine when.
With fundamental analysis you can do better long-term trading, with short-term technical.
Speculating in highly volatile markets such as cryptocurrencies, where the price adapts very quickly to the news, is easier with technical analysis than with fundamental analysis, added to the fact that many markets of this type tend to have problems that intervene in a very long way with prices.
Finally, I would like to clarify that although their greatest difference is based on their perspective or purpose, thanks to this it is certainly possible to complement them and study the market from different points of view, thus increasing our financial intelligence and the possibilities of doing a good business.
3.- In a demo account, execute a sell order in the cryptocurrency market, placing the support and resistance lines in time frames of 1 hour and 30 minutes. Screenshots are required.
We can see how in the first image I place the lines that I will use as a guide, important levels on the chart called support and resistance lines. 1 hour candles.
In the following image I repeat the operation, but add a third reference level, in this case an extra resistance for the current course of the price. 30 minute candles.
For the last image of the chart of this operation notice how I add many signals, all references to understand, first of all there are the circles that indicate the important levels where the price touched and where it tends to return. Our order places at the top of the last lowest peak plotted so far, we are trading in a very strong downtrend and reversal is very likely, note the lines plotted to identify the trend where you also see some dynamic support and resistance levels which the price has been traveling, our stop loss will be placed a little above the extra resistance level plotted on the 30-minute chart, the take profit is above the support level plotted on the 30-minute chart.
We can see our short position or sell order executed.
4.- In a demo account, execute a buy order in the cryptocurrency market, placing the support and resistance lines in time frames of 1 day and 4 hours.
For our long position we will follow the same strategy in reverse and in different time intervals. We start by plotting support and resistance levels for a 1-day candlestick chart.
Next we plot support and resistance levels for 4 hour candlestick charts.
For the last image of the graph and the operation, we can notice how I place the purchase order on the current course of the price, currently for said asset there is a fairly strong upward trend and you can take good advantage of the end of it before the next really strong resistance level that we plot on the one day candlestick chart.
We place the stop loss below the last high peak higher than the previous one and the take profit goes in a 1:1 relationship ending before the next resistance level plotted.
We can see our long position or buy order executed.
5.- Explain the “Hanging Man” and “Shooting Star” candlestick patterns. Show both candlestick patterns on a cryptocurrency market chart. Screenshot is required.
In the following chart we can see both candlestick patterns:
Both are patterns that indicate very strong bearish pressure and are often used to identify potential reversals in the market. Let's understand each one more thoroughly.
Hanging Man: This is a Japanese candlestick pattern that we can characterize as being very similar to the hammer candlestick, only in this case it is usually found at the end of an uptrend and forecasts an early trend reversal. We can see that it is formed by a small body with an upper wick that is non-existent or very short, and a long lower wick, it usually occurs because there are many short positions at that point and being in an uptrend that is not strong enough the market finds a resistance and goes down, the sellers managed to take control and lowered the price a lot in that time interval.
Shooting Star – This very inverted hammer-like candlestick pattern is usually found at the end of an uptrend and warns of a possible reversal. This is because the current market is in a weak uptrend that has found a major level of resistance where sell orders exceed buy orders and the bears start to take over the market. We can see that it consists of a small body with a practically non-existent lower wick and a very long upper wick, and it should usually be followed by a bearish candle that opens and closes below. The long wick follows the principles of the hanging man pattern, basically signifying the very strong dominance of the bears on this timeframe.
Conclution.
We can notice that the basic things are always the best to trade, of course a good strategy always helps, but knowing and remembering the basics of trading will help us focus on the main goal, generating profits. If we complement the fundamental analysis with the technical one we can always find very good operations on which we will trust our assets, through this class and task we can rescue many aspects that are worth remembering and always take into account when trading, mind cold, study of the market and its state and the study of price movements, all this depends on the trader, that's why the trader's worst enemy is the trader himself, let's have focus and responsibility.
