In order to assess the price trend of a crypto-currency market, main peaks and troughs must be identified. Peaks are reached at resistance zones, troughs at support zones. In order to interpret not only charting patterns, but also a variety of mathematical measures, help and resistance are key themes.
Support and resistance lines, particularly in recent market action, help you determine the entry and exit levels of trade by providing upper and lower trading range estimates.
Crypto traders should analyze possible trading ranges before placing trades (as estimated by support and resistance levels). For instance, if the estimated intraday spread in a market is less than 1 percent, a target profit of 0.5 percent (on one intraday trade) might not be feasible.
To take your crypto trading to the next level, understand support lines, along with statistical indicators and crypto chart trends.
Identifying support and resistance while trading cryptocurrency
Support, as the name suggests, shows a price level or region on the map where purchasing demand is high enough to counteract selling pressure, offering either price stability or upward progress.
Resistance is the opposite of help, reflecting a level of price or region where pressure to sell overcomes pressure to purchase, stall or end a price advance.
The majority of inexperienced traders understand reasonably quickly that it can be difficult to assess main support and resistance levels. Any top and bottom in a price chart can be recognized by anyone.
More important, however, is deciding which tops and bottoms are likely to provide considerable support and resistance. Referencing Previous Highs and Lows, Round Numbers, Fibonacci Retracements and Chart Trends can also forecast support and resistance.
In general, the strength of a support or resistance level increases the more times it has been tested successfully, and the greater the time between market attempts to break below or above resistance support. Sometimes, if the level of support or resistance is breached, former support becomes resistance, and support becomes former resistance.
Traders looking to go long while margin trading often place their limited purchase orders just above support in anticipation of a good test and bounce off support, or just below support in anticipation that the market will break below support falsely, only to rally back to the top of a range.
In the hope that the market will eventually break resistance, buy limit orders are often often set just below resistance, while purchase stop orders can be positioned just above resistance with the expectation that the market will gain renewed upward momentum on breaks above resistance.
In comparison, traders looking to go short may position sell limits just above support levels expected to eventually break the support, or may set sell stop orders just below support levels with the expectation that once support is broken, the price will continue to plunge lower.
Selling limits are always set just below levels of resistance, assuming that resistance will hold, or just above levels of resistance, in the expectation that any break above resistance will be temporary after a false break, with the market dropping back under resistance.
Previous highs and lows on crypto charts
Where rallies have stopped, there have been highs. Lows have been identified where prices have found a floor. These historical main levels are used by the market as a reference for future trade.
It is necessary to stress that support and resistance are not often encountered at the specific levels of previous lows and peaks, but rather in their general vicinity. The more frequently and the longer a market trades at or near a price level, the more the price is remembered by market participants.
A market can hesitate to sell at a substantial previous low, because it recalls how the market rallied shortly afterwards. The greater the period a price represents, the higher or lower the resistance or support provided by that price, the more likely it is.