<div class="text-justify">Hello again Professor @cryptokraze. I think theoretical knowledge is fabulous, but when it becomes practical it is simply sublime. They say that knowledge is power, but I think it really becomes powerful when we are able to apply it to our day-to-day; as is the case of what we have learned in this class.</div class="text-justify">
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Let's begin
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<center><sub>Image edited by me in Powerpoint</sub></center>
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<center><h2>1- What do you understand about the Concept of Dynamic Support and Resistance? Give Chart Examples from Crypto Assets. (Clear Charts Needed)</h2></center>
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This concept is very similar to traditional support and resistance, however, I would like to expand it further. Dynamic Support and Resistance are levels where the price reacts due to people's buying or selling action, and which has the fundamental characteristic of being time-varying (that's where the term dynamic comes from).
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Instead of horizontal lines, Dynamic Support and Resistance manifest themselves through diagonal lines; but also another way to understand it is as a kind of invisible wave that moves in conjunction with the price, varying at the same time as the market and making the price react.
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The way we make these levels visible is through EMA indicators, wherein a very simple way these dynamic support and resistance levels are made apparent. For example.
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<sub>ETH/USDT 15min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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In simple terms, an EMA, through its line indicates the average behavior of the closing prices of assets, whereby always the indicator line will maintain a respective distance from the candlestick close. This separation illustrates a natural resistance or support with which the price will try to interact.
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Naturally, the EMA line evolves with the price, so at a certain moment it may illustrate a resistance, but some time later become support.
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Usually, 2 EMAs are used, which on most occasions correspond to EMA 50 and EMA 100. In fact, having more than one EMA will give us more points of dynamic support and resistance with which the price can react.
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<sub>ETH/USDT 30min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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The EMA number refers to the length configured in its parameters, where the longer the length the greater the separation of the candlestick close, and in turn the greater the level of strength in the support or resistance.
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Note: On some occasions, I have seen trading with up to three EMAs: 50, 100, and 200.
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<center><h2>2- Make a combination of Two different EMAs other than 50 and 100 and show them on Crypto charts as Support and Resistance. (Clear Charts Needed) </h2></center>
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Inspired by the MACD indicator, I will use the combination EMA 12 and EMA 26, where the EMA 12 will represent fast dynamic support and resistance, very close to the price. And the EMA 26, slow, and further away from the price.
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We must remember that the main MACD line is actually the difference between two EMAs of 12 and 26, so I find it convenient to use them and see how they perform. However, I must caution that by using such short lengths, these types of EMAs work for short-term trading.
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In this first case, we will look at the combination of EMA 12 and EMA 26 as supports.
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<sub>EMA 12 and EMA 26 as supports; ETH/USDT 30min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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For the second case, we will see the combination of EMA 12 and EMA 26 as resistances.
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<sub>EMA 12 and EMA 26 as resistances; ETH/USDT 30min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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<center><h2>3- Explain Trade Entry and Exit Criteria for both Buy and Sell Positions using dynamic support and resistance on any Crypto Asset using any time frame of your choice (Clear Charts Needed) </h2></center>
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To explain the criteria I will use the DOT/USDT pair, 15min using two EMAs of 50 and 100.
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<center><h3>Entry Criteria (BUY) </h3></center>
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<sub>Buy entry criteria; DOT/USDT 15min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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1- First of all we must be in an up-trending market, where the 50 EMA is above the 100 EMA and the candlesticks are above both EMAs. Previously we must select the EMAs to use.
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2- Be attentive to the behavior of the price when it approaches the EMA 50. At some point, the price will touch or break the EMA 50. In the case that it touches and bounces, it will be our first confirmation. In my example, this occurs at the 15.700 USDT level approximately.
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3- When this happens we should NOT set an entry immediately, but wait for the price to continue to move away from the EMA 50. I personally recommend waiting for the candle that broke or bounced to close, and for the next candle to be bullish.
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4- Finally, on the next bullish (green) candle we open a long position. In my example, this occurs at the 15.807 USDT level.
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<center><h3>Exit Criteria (BUY) </h3></center>
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<sub>Buy exit criteria; DOT/USDT 15min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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1- Initially the 100 EMA, being a stronger resistance than the 50 EMA, will work as a minimum limit for our Stop Loss. So from our entry point down, we define our Stop Loss below the EMA 100 line. In my example the SL will be 2.80%, I will place it at the 15.364 USDT level.
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2- Applying a Risk / Reward ratio of 1:1, we set the same Stop Loss percentage for Take Profit upwards. In some cases, more experienced traders use a Risk / Reward ratio of 1:2. In my example the TP will also be 2.80%, I will place it at the level of 16.250 USDT.
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3- Both Stop Loss and Take profit points will work as exits of a trade.
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<center><h3>Entry Criteria (SELL) </h3></center>
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<sub>Sell entry criteria; DOT/USDT 15min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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1- First of all we must be in a bearish market, where the 50 EMA is below the 100 EMA and the candlesticks are below both EMAs. Previously we must select the EMAs to use.
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2- Be attentive to the behavior of the price when it approaches the EMA 50. At some point, the price will touch or break the EMA 50. In the case that it touches and bounces down, it will be our first confirmation. In my example, this occurs at the 14.500 USDT level approximately.
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3- When this happens we should NOT set an entry immediately, but wait for the price to continue to move away from the EMA. I personally recommend waiting for the candle that broke or bounced to close, and for the next candle to be bearish.
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4- Finally, on the next bearish (red) candle we open a short position. In my example, this occurs at the 14.400 USDT level.
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<center><h3>Exit Criteria (SELL) </h3></center>
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<sub>Sell exit criteria; DOT/USDT 15min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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1- Initially the 100 EMA, being a stronger resistance than the 50 EMA, will work as a limit for our Stop Loss. So from our entry point upwards we define our Stop Loss above the EMA 100 line. In my example the SL will be 2.80%, I will place it at the level 14.804 USDT.
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2- This time I wish to do it a little differently. It is recommended to apply a Risk / Reward ratio of 1:1, setting the same Stop Loss percentage for Take Profit downwards. But for my case, the ratio will be 1:2, so in my example, the TP will be double of SL, a 5.60%, I will place it at the level of 13.594 USDT.
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3- Both Stop Loss and Take profit points will work as exits of the trade.
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<center><h2>4 - Place 2 demo trades on crypto assets using Dynamic Support and Resistance strategy. You can use lower timeframe for these demo trades (Clear Charts and Actual Trades Needed)</h2></center>
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For both cases, I will use the DEMO account of Paper trading (Tradingview).
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<center><h2>BTC/USD</h2></center>
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In this pair, I will trade at 5min with EMAs 50 and 100. The first thing I notice is that the current trend is bullish, with the price above both EMAs, so I will be looking for a long entry.
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At a selected point the price plummets and breaks the 50 EMA line, then rises back up to break again. As it is approaching the 50 EMA line I set up an entry to buy at 32320 USDT.
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<sub>BTC/USDT 5min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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Based on that point I estimate a stop loss and take profit at 32150 USDT and 32490 USDT respectively. Crossing the level of my limit trade makes the buy at the selected point. It was not as I expected, however on the next candle the uptrend continued and the price moved further away from the 50 EMA.
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<sub>BTC/USDT 5min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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Finally, we can see that the price has moved down and retested the two EMA lines several times, but has not touched either of the two exits. This is why I still find myself waiting for an exit at profit.
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<center><h2>BNB/BTC</h2></center>
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In this pair again I will trade at 5min with EMAs 50 and 100. The first thing I notice is that the current trend is bearish, with the price below the two EMAs, so I will be looking for a short entry.
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At a selected point the price rises and bounces against the 50 EMA line. After the bounce a red candle forms, however, I contain my entry.
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<sub>BTC/USDT 5min chart. Image edited by me and taken from Tradingview. <sup><a href="https://www.tradingview.com/" rel="noopener" title="This link will take you away from steemit.com">Source</a></sup></sub></center>
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For this demo I wanted to perform a trade at market price, where I completely control the entry, as what I am looking for is candlestick confirmation and not a specific price. When the next candle again is red and moves away from the 50 EMA I make my sell entry at the 0.009108 BTC level.
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Based on this entry point I set my stop loss and take profit at the 0.009140 BTC and 0.009075 BTC levels respectively.
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What I liked most about this trade was the way and the instant I made the entry. On the other hand the bad thing was the result, as the trade took me out at stop loss a few hours later; but I guess not all of them are won.
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<center><h2>CONCLUSION</h2></center>
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Understanding how the market behaves and how it reacts with dynamic support and resistance levels will definitely give us an edge over the rest, and make us more clearly discern future behavior.
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Throughout all the examples we could see how the dynamic support and resistance lines given by the EMAs offer excellent reaction levels. We must remember that this method works best in trending markets, as in-market consolidation we can receive ambiguous signals.
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This is not an infallible method, so we must have correct risk management in every investment we make. Above all, we must have an agile mentality, able to make decisions quickly.