Crypto Academy Season 6 Week 1 : Leverage With Derivatives Trading Using 5 Min Chart

in hive-108451 •  4 months ago 

Good day steemians, This is season 6 week 1 of the crypto academy and I'll be doing the task assigned by crypto professor @reddileep

TASKS

1- Introduce Leverage Trading in your own words.

2- What are the benefits of Leverage Trading?

3- What are the disadvantages of Leverage Trading?

4- What are the Basic Indicators that we can use for Leverage Trading? (Need brief details for any essential Indicators and their purposes)

5- How to perform Leverage Trading using special trading strategies (Trading Practice using relevant indicators and strategies, Screenshots required)

6- Do a better Technical Analysis considering the above-explained trading strategy and make a real buy long or sell short position at a suitable entry point in any desired exchange platform.


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image designed in canva


1. introduce leverage trading in your own words

Leverage trading in crypto trading also known as margin trading is a mechanism that allows traders to utlilie borrowed funds from exchanges in order to make transactions. This means traders would be able to open larger positions than their normal account balance. Leverage works like this, lets imagine a scenario where a trader currently possesses $200 in his wallet and wishes to open larger trades. By taking advantage of leverage trading, its possible to open trades worth $2000 and more. This is just the beauty of leverage trading and its interesting to know that this form of trading exists on the crypto and forex markets alike.

This trading method helps to potentially amplify profits due to the ability to open bigger positions in the market, however it's pertinent to note that this trading method just like other trading techniques that exist in the crypto space is not without fault. Leverage trading comes along with a huge amount of risks and the same way it could amplify profits for traders, it could also lead to catastrophic losses therefore it's advisable to garner enough information and refine your strategies before going into leverage trading.


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2. what are the benefits of leverage trading

Leveraged trading possesses some inherent benefits which are very advantageous to traders in the market and the benefits of leverage trading include:

  • Leverage trading provides traders with access to additional capital for trading.

  • Ability to open larger positions relative to account size: this is because of the availability of extra funds made available leverage traders.

  • Increases profitability of traders.

  • When trading using leverage, tradrs are allowed to take out partials from their trades without having to exit the entire trade. This ensures that the optimum is gotten from trades.


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3- What are the disadvantages of Leverage Trading?

Leveraged trading also has some bad sides which may prove disadvantageous to sellers and the disadvantages of leveraged trading include:

  • In an unfavorable situation when a loss occurs, the losses may exceed the available balance in the account.

  • Exposure to larger losses

  • Small amounts would be charged for funding fee and over time this may become a significant amount.

4- What are the Basic Indicators that we can use for Leverage Trading?

While trading using leverage, it's well known that this form of trading is very risky and can lead to big wins as well as hige losses also. However, a number of indicators can help to reduce the occurrence of losses by giving accurate signals and identifying the overall direction of the market for traders to avoid taking risky trades. This eventually increases the chances of success in leverage trading and some of these indicators include:

  • Relative Strength Indicator (RSI)
  • Parabolic SAR indicator
  • Exponential Moving Average (EMA)

Relative Strength Index (RSI) Indicator
The Relative Strength Index (RSI) Indicator is a momentum indicator that helps to measure the volatility of price movements. It was developed by J. Welles Wilder to determine extreme situations in the market such as oversold and overbought signals.

The RSI indicator oscillates around the 0 and 100 levels. Once the indicator oscillates around the 70 region, it indicates an overbought situation which informs traders of an impending reversal to the downside, and conversely, when it enters the 30 thresholds it indicates an oversold situation which informs traders of an impending reversal to the upside.


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image of RSI indicator customized to chart
gotten from trading view

With the use of the RSI indicator, traders are aware of reversals which may occur in the market and terminate traders and thus they take measures against it when trading with leverage.


Parabolic SAR indicator
The parabolic SAR indicator was also developed by J. Welles Wilder Jr helps traders to identify and determine the direction of price as well as its movements. It is composed of a series of dots that gives entry signals and shows trend direction in the market. Whenever the parabolic SAR dots show below price, it indicates that the market is in an existing uptrend and similarly whenever the parabolic SAR shows above price, it indicates that the market is in an existing downtrend.

The parabolic SAR can be customized to suit a trader's style and preference and used to confirm trade signals gotten in the market in leverage trading. An image of the parabolic SAR customized to chart with default settings is given below.


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image of Parabolic SAR customized to chart
image gotten from trading view


Exponential Moving Average (EMA)

The Exponential Moving Average (EMA) is basically a trend identifying indicator and can be very useful in leverage trading by giving off ling and short signals with respect to recent price information gotten from divergences and crossovers in the market.


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image of Exponential Moving Average (EMA) customized to chart
image gotten from trading view


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5- How to perform Leverage Trading using special trading strategies (Trading Practice using relevant indicators and strategies

Leveraged trading is viewed as a double edged sword because it could promise an investor with massive wins as well as huge losses therefore when trading using leverage its important to filter out the noise in the market to have a clear accurate analysis of the market and for this, I'd be making use of the heiken ashi charts as instructed by the professor on a timeframe of five minutes.

The Heiken Ashi would be used in conjunction with a number of indicators, the Relative Strength index, parabolic SAR and the exponential moving average.
For this strategy, the first criteria to take into notice are the EMA and price. Observe if the price falls above or below the EMA i.e if price falls above the EMA then we should only look for buy trades and if price falls below the EMA we should only look for sell trades.

The second criteria to take into cognizance is the behavior of the Parabolic SAR indicator. observe and check the position of the dots of the SAR indicator.
If the dots of the Parabolic SAR indicator are above price, then sell/short trades should be taken. Similarly, if the dots of the Parabolic SAR indicator are below price, then buy/long trades should be taken.

Finally, the third criteria to take into consideration is the RSI indicator. The RSI indicator should be used as a confirmation indicator to increase the accuracy of signals given off by the parabolic SAR. Buy signals given by the other indicators are confirmed when the RSI indicator is below 50 (middle threshold). However, the accuracy of the signal generated is stronger when the RSI is below the 20 thresholds upon signal confirmation.

The image below shows a good buy opportunity. I have indicated a support level which price has reacted to in the past and price has retraced to that zone again. The EMA is below price indicating that only buy entries should be sought after and also the parabolic dots have emerged below the price giving a buy signal. The signal is confirmed by the RSI trading below the 50 region and thus a buy trade is taken.


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buy trade with special trading strategy
image gotten from trading view

Short signals given by the other indicators are also confirmed when the RSI indicator is above 50 (middle threshold).

The image below shows a good sell opportunity. Observing the first criteria listed, the EMA is above price which means that only sell entries should be sought after to increase accuracy and also the parabolic dots have shown above price giving a sell signal. The signal is further confirmed by the RSU trading above the 50 region and thus a sell trade is given.


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sell trade with special trading strategy
image gotten from trading view


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6- Do a better Technical Analysis considering the above-explained trading strategy and make a real buy long or sell short position at a suitable entry point in any desired exchange platform.

For this live trading, ill be making use of trading view for my analysis and binance for the trade.


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Trade entry using strategy
image gotten from trading view

In the CHR/USDT chart pair, we observe that all criteria required for the buy trade have been satisfied. Firstly, price is seen trading above the EMA line and the parabolic SAR had begun to appear beneath the price and at the same time, the RSI indicator confirmed the signal by trading below 50. Hence a buy trade was taken off the signals given and the take profit was set at a point of interest which could potentially change the direction of price (minor resistance on the 5 minute timeframe).

The trade played out beautifully as shown in the image below.


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Trade completed using strategy
image gotten from trading view

Image gotten from binance mobile wallet
Image gotten from binance mobile wallet

7. Conclusion

Leverage trading is a very risky form of trading as it has the potential to guarantee both big wins and losses alike and the crypto professor has done an excellent job of putting forward the concept of leveraged trading as well as strategies to use to profit from this form of trading in a simple way. Thanks to the steemit team for the crypto academy, It's done far much in helping me tackle the markets one indicator/strategy at a time.

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