Determining the zone Resistance and support is extremely important in cryptocurrency trading. Investors can use moving averages, and trendlines or rely on candlestick patterns to find support and resistance levels in technical analysis. The following shares of Crypto Trading Crypto Trading help you better understand this. Let’s refer to the article with us!
What is the answer Resistance and support?
Resistance is a price zone where selling pressure is more dominant than buying pressure. This is due to the supply being much higher than the demand in the market, causing the asset price to reverse from increasing to decreasing sharply.
The opposite of the resistance zone is the support zone (also known as Support). This is the price zone where buying power overwhelms selling power. The reason is that the demand in the market is much greater than the supply, leading to a trend reversal from falling to rising.
What role do Resistance and Support play in Crypto trading?
Levels of Resistance and support are important limits when analyzing price movements in the Crypto market. Based on these two levels, investors can consider making the right decisions and trading strategies. In other words, support and resistance partly reflect the psychology of traders when participating in transactions.
In addition, identifying resistance and support is also the basis for investors to find buy/sell order points, make a profit, and cut losses according to appropriate principles. By monitoring the fluctuations occurring in the support and resistance zones, you can also predict future price changes.
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How to Identify Support Resistance Zones in Crypto Trading?
In Crypto technical analysis, investors can identify support and resistance through MA (moving average), and trendline, and apply Japanese candlestick charts.
Applying MA Line in Crypto Trading
If you are trading short-term, you can use the MA line to find support and resistance levels. The MA line has the effect of smoothing out the noise of price fluctuations. If the market price is below the average line, you will identify a resistance zone. Conversely, when the asset price is above the average line, this is a support zone.
Identify support resistance levels through candlestick charts
By observing the candlestick pattern, investors can find the price zone. At the top of the candle, the support level is the distance from the highest price to the closing price/opening price of the candle. The more candles appear, the stronger the resistance zone. The market price is unlikely to break out of this zone.
Conversely, at the bottom of the candle, the resistance level is determined by the distance from the lowest price to the closing price/opening price. The more candles there are, the stronger the support zone, making it difficult for the asset price to fall through this zone.
Using trend lines in technical analysis
Trendlines are used in the context of the cryptocurrency market, which is often volatile. When prices tend to decrease, the falling trendline (resistance line) is determined by the distance between two price peaks over a specific period. The closer the price is to the resistance line, the more selling pressure is increasing.
If the price is trending up, the uptrend line (support line) is determined by the distance between two price bottoms over a fixed time. The closer the price is to the support line, the more buying power is increasing.
In addition to the above methods, traders can also apply Fibonacci (golden ratio series). If the market price exceeds the ratio score zone, this is the support zone. Similarly, when the price is below the ratio score zone, this is the resistance zone.
See more: HTX exchange – Instructions for open an HTX account
Guide to effective trading with zones Resistance and support
From the above information, traders have grasped the characteristics and how to identify support and resistance in Crypto trading. For the DeFi market (decentralized finance), traders should combine the Defillama chain tool. Thus, you can track and update data on cryptocurrency flows fully and quickly. From there, propose a suitable Crypto trading strategy, bringing high efficiency.
Place a trade order after identifying support resistance
Investors will place Buy or Buy Limit orders at the support zone. At the same time, place Sell or Sell Limit orders at the previously determined resistance zone. However, when placing orders at these zones, you may encounter a Stop Loss sweep. The candlestick sweeps strongly through the support and resistance zone, then reverses the order, causing the transaction to turn from profit to loss.
To overcome this situation, traders should choose reputable and quality Crypto exchanges. You can also combine technical analysis indicators to give accurate signals.
Place orders when there is a reversal signal in Crypto trading
Market price reversal signals are determined through tools and indicators such as:
- Price channel.
- MA average line.
- RSI indicator.
- MACD indicator.
- Breakout trendline.
- Reversal candlestick chart…
Investors often use Japanese candlestick reversal patterns to quickly and accurately identify reversal signals. These signals also clearly show the Stop Loss position on the chart. After identifying the reversal signal at the line Resistance and support, you can place a buy/sell order, or apply the Scalping trading strategy. So What is scalping trading?
This is a “surfing” trading strategy, helping traders earn many small profits during the day. Investors will continuously place orders during the trading session. Scalping trading requires each trader to clearly understand market trends and accurately determine price fluctuations in a short period. This strategy is very suitable for beginners.
Technical analysis and trading when price breaks out/retests
When you see an asset price showing signs of breakout (breaking out of resistance zones), you need to place an order immediately:
- Price breaks support zone: Enter Sell or Sell Stop order.
- Price breaks resistance zone: Enter Buy or Buy Stop order.
In addition, a support zone after being broken can become a resistance zone. Similarly, when broken will become a support zone. Traders can wait for the price to retest (return to that zone) and then place an order.
Conclude
Above is the information about Resistance and support that we want to share with readers. Hopefully, through this article, traders have grasped how to identify and apply effective trading strategies with support and resistance zones. To update the latest information about the cryptocurrency market, don’t forget to read the articles at Crypto Trading!
FAQs
Below are some frequently asked questions when traders learn about resistance levels.
What factors make up support and resistance in technical analysis?
Market sentiment and investor regret are two factors that create support. If a trader buys an asset and the market price tends to rise again, the trader will regret not buying more. The seller will also regret that they misjudged the price trend and sold the asset for a low price. The viewer will also feel the same because they did not place a buy order.
What should be noted when entering a trading order at the support resistance zone?
Instead of placing orders early, you should buy/sell assets right at the resistance and zones. You also need to maintain a calm mentality and patiently wait for the market’s reversal signal. Being hasty in trading will cause traders to lose or gain unexpected profits.
How to draw support resistance lines?
The easiest way for new traders to draw resistance lines is through the lowest and highest points of the price. After determining the cycle and time of price fluctuations, investors can identify the support and resistance zones.
