Learning about resistance support is one of the first indispensable steps for any new investor when entering the Crypto market. This is not only basic knowledge but also an important foundation for understanding how the market works. Let’s explore with Crypto Trading the meaning and how to identify resistance and support zones in technical analysis. These are two factors that determine the value of cryptocurrency trading. Follow along!
Overview of Resistance Support in Crypto
resistance support are concept used to refer to important price levels in the past. They are often formed when the price changes direction or pauses moving. Creating new tops, bottoms, or trends in the Crypto market.
What is the concept of resistance support?
Support is a price area where a downtrend seems likely to change and has the potential to reverse to the upside. There, there is usually more buying pressure than selling pressure from the majority of investors.
When the price is correcting down there are signs of the next uptrend. The lowest price point before the uptrend continues is called the support zone. To determine the support zone, investors often have to rely on indicator analysis. To decide whether they should buy the product or not.
Resistance, on the other hand, is an area where prices appear to be trending up. It can be volatile and potentially reverse to the downside. It is also an area where there is usually more selling pressure than buying pressure from investors.
When the price is rising but shows signs of further decline. The highest price point before the uptrend continues is identified as the resistance zone.
How to distinguish resistance and support zones
To put it simply, we can consider support zones as bottoms. Resistance zones as peaks. In the Crypto market, prices move in a series of peaks and bottoms. Therefore, recognizing the resistance support zone is very important. In particular, recognizing the resistance support zone in the What is scalping trading strategy is what so that investors can identify market trends. From there, they can make timely transactions.
When the market is trending up, support and resistance zones will form in an upward direction. Conversely, in a downtrend, support and resistance zones will form in a downward direction.
An important point to note is that when a support or resistance level is broken. The roles of the two zones will change. That is, a support zone will become a resistance zone. Conversely, a resistance zone will become a support zone.
Factors forming support resistance levels
This is one of the questions that many investors are interested in. In the book “Financial Market Analysis” by famous financial expert John Murphy. It mentions two basic factors that form support and resistance levels, including Market Psychology and regretful habits of the past.
- Market psychology is usually observed in three main groups: Buyers, sellers, and bystanders. For example, when the price of gold increases from 2 million to 4 million per tael, investors who bought gold at the initial price may feel excited and proud of their profits. This psychology reflects the joy of buyers. On the contrary, those who did not participate in the transaction may feel regretful for not participating when the price was low and benefiting from the price increase. Finally, sellers may be worried when the price increases. They feel pressured and want to sell to avoid losses. These actions affect the market, causing prices to rise again after a period of decline.
- The habit of regretting the past is common among investors. It includes both new and experienced ones. Due to repeated failures or missed profitable opportunities, they become afraid to enter a trade. When the market shows support and creates a strong trend. Some people may be optimistic about continuing to trade. While others may hold back and not make any decision.
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How to Identify Support and Resistance in Crypto
To identify the resistance support area, you need to focus on the following points:
- When the market is in an uptrend and goes through a correction phase. The highest point before the decline is the resistance zone.
- When the market is in an uptrend and continues to move up. The lowest point before the increase will become the support zone.
- During the volatility phase, support and resistance levels will be created continuously.
- Easily recognizable on the Bitcoin chart, support zones hold BTC’s price, preventing it from falling due to strong buying pressure. These are considered points where the price can only break through with strong selling pressure.
- Similarly, resistance is often determined by observing the Bitcoin price failing to break above a certain level. For example, $12,000. This is usually the result of strong selling pressure at that price area. Resistance can only be broken when there is strong buying pressure.
Detailed guide on how to draw resistance support in Crypto
To draw accurately and effectively. Traders need to focus not only on the exact numbers. For a better understanding, you can draw on line charts instead of other types of charts. This will help you develop your skills and understand them better.
How to draw Resistance zones in technical analysis
To draw resistance, you need to focus on previous price highs. Resistance can be represented as a horizontal or diagonal line. This line is called a trendline.
When identifying resistance zones or lines, it is advisable to consider at least two previous highs (the more the better). This increases the reliability and accuracy of technical analysis for crypto.
How to draw a support zone
When it comes to drawing support, you focus on previous lows to identify support points. These can be horizontal lines or trend lines, depending on your chart.
When drawing support lines or zones, you should consider at least two previous lows (more is better). Similar to identifying resistance, using more of these price points will increase the accuracy and reliability of the chart.
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Effective trading strategy with resistance support
To make good use of these levels, you need to apply effective trading strategies or methods. Here are some popular Crypto trading strategies:
Identify the trend
- Use trend lines as support or resistance. Draw a line connecting two or more higher highs in a downtrend. Or between two or more lower lows in an uptrend.
- In a strong trend, prices will often bounce off the trend line and continue moving in the direction of that trend. Therefore, traders should look for trading opportunities in the direction of the trend for trades with a higher probability of success.
Range Trading
- Range trading occurs between support and resistance levels when traders buy at support and sell at resistance.
- Think of the range between support and resistance as a room. Ranges often appear in sideways markets where there is no clear trend.
Breakout Trading Method (Pullback)
- This is a method that many people call Pullback. It is usually applied after a period of uncertainty about the direction the price will break and start a new trend.
- Traders often look for such breakouts below support or above resistance to capitalize on bullish or bearish momentum in the predicted direction. If the momentum is strong enough, it has the potential to start a new trend.
- However, to avoid falling into the trap of false breakout trading, top traders often wait for a pullback to support or resist before taking a trade.
Conclude:
Hopefully, the information provided by Crypto Trading will help investors effectively apply knowledge about resistance support to Crypto trading. From there, they can achieve more positive results in trading. Wish investors success in their journey. Besides, don’t forget to follow Crypto Trading to update more useful knowledge!
Frequently Asked Questions
How to identify resistance and support levels on charts?
These levels are often determined using previous highs and lows on a chart. The highest point before the price drops becomes resistance, while the lowest point before the price rises becomes support.
Why are support and resistance important to investors?
They provide important information about price trends and provide a basis for trading decisions. They help investors determine entry and exit points in the market.
Is there any way to determine the reliability of support and resistance levels?
The reliability of their levels increases when they are identified from multiple peaks and troughs on the chart. These levels are stronger if they are confirmed by price patterns and other technical indicators.
