In order to determine a cryptocurrency market’s price trend, key peaks and troughs must be identified. Peaks are reached at areas of resistance, troughs at areas of support. Support and resistance are central themes to interpreting not only charting patterns, but also a number of Mathematical Indicators.
Support and resistance lines particularly within recent price action help you determine trade entry and exit levels, by providing estimates on the upper and lower trading range.
Before placing trades, crypto traders should assess potential trading ranges (as estimated by support and resistance levels). For example, if intraday range expected on a market is less than 1%, a 0.5% target profit (on one intraday trade) may not be realistic.
Understand support lines, along with mathematical indicators and crypto chart patterns to take your crypto trading to the next level.
Identifying support and resistance when trading crypto
Support, as the name implies, indicates a price level or area on the chart where buying interest is sufficiently strong to overcome selling pressure, providing either price stability or upward movement.
Resistance is the opposite of support, representing a price level or area where selling pressure overcomes buying pressure, stalling or ending a price advance.
Most novice traders realize fairly quickly that determining key support and resistance levels can be challenging. Anybody can identify every top and bottom in a price chart.
More important, though, is determining which tops and bottoms will likely provide significant support and resistance. Support and resistance can often be predicted by referencing Previous Highs and Lows, Round Numbers, Fibonacci Retracements and Chart Patterns.
The strength of a support or resistance level generally increases the more times it has been successfully tested, and the greater amount of time in between market attempts to break below support or above resistance. Oftentimes, once the support or resistance level is broken, former support becomes resistance, and former resistance becomes support.
Traders looking to go long when margin trading sometimes place their limit buy orders just above support in the expectation of a successful test and bounce off of support, or just below support on the expectation that the market will break falsely below support, only to rally back towards the top of a range.
Buy limit orders are also sometimes positioned just below resistance in the expectation that the market will eventually break resistance, while buy stop orders may be positioned just above resistance with the expectation that the market will find renewed upward momentum on breaks above resistance.
Conversely, traders looking to go short may place sell limits just above support levels expecting the support to eventually break, or may set sell stop orders just beneath support levels with the expectation that the price will continue plunging lower once support is breached.
Sell limits are often placed just under resistance levels, under the assumption that resistance will hold, or just above resistance levels, on the hope that any break above resistance will be temporary with the market falling back beneath resistance after a false break.