Support and Resistance Levels in Crypto: What They Are and How to Use Them

 

A solid understanding of support and resistance levels in the crypto market will give you a competitive edge over other traders, allowing you to seize profitable opportunities faster than your peers. These price levels are like those used in traditional stock trading, so it is easy to pick out support and resistance levels in the crypto world if you already understand how they work. Here's what you need to know about this key feature of technical analysis and how you can use it to your advantage.

 

Understanding resistance and support levels

Traders use support and resistance levels to decide where an asset will go back up or down. In technical analysis, resistance refers to a price level where demand previously pushed an asset's price up but was unable to break it. Similarly, support refers to the level where supply has historically pushed prices down but could not lower them. To understand more about support and resistance levels, look at our guide below!

For example, let's say you're trying to buy ETH for $100. When you enter your order on an exchange like Coinbase Pro, your order is placed on the book with other orders from buyers who are willing to pay the same amount for ETH (sellers do the same). Buyers' best bids are not required to be filled in first; Instead, exchanges check which orders offer the best combination of lowest ask and highest bid for each trade pair before filling any of those orders.

 

The importance of knowing these levels

Support and resistance levels are important because they are an important part of your trading strategy. For example, if you want to go long (buy) on a currency pair, you may want to wait for it to clear a resistance level before doing so. On the other hand, if you are going short (sell), you would want it to break below a support level before entering your trade. In addition, knowing where these levels are can help with other parts of your business; For example, if one side is right around an area of ​​support or resistance, this can be used as an indication that things may soon move there. It's not always accurate, but it can certainly provide some insight into what might happen next. As such, knowing where the support and resistance levels are located is very important when planning your trades.

 

How can you use these levels?

A support level is a price point where demand is deemed to be strong enough that buyers will buy at these prices, preventing further declines below that point. This can also apply to crypto exchanges or cryptocurrency trading pairs where a relatively large buy order from buyers is waiting for an opportunity to grab some of these coins at low prices. When a certain coin hits support levels it does not necessarily mean that it has hit the bottom and there may be a bounce out of them; However, this indicates more buying pressure than selling pressure resulting in an upward move till higher resistance levels are found. A resistance level is quite the opposite of a support level.

For example, if you see that a popular altcoin reaches its highest price point yet does not drop below its previous high, you might consider buying it before it reaches a new high (resistance), This can lead to a sharp decline at lower levels. (help). This is an example of using support and resistance levels to your advantage.

 

Risk management

Understanding support and resistance levels is an important part of risk management. Risk management is something that all investors, traders, and analysts should be familiar with. By knowing what they are, how they work, and when to look for them, you can effectively manage your risk in the crypto markets. Support and resistance levels help to identify areas where market participants may be interested in buying or selling at certain prices. It is important to note when analysing price charts that these levels are not set in stone, as they depend on market sentiment which can change rapidly based on news events or announcements from company executives. However, once established these areas act as magnets for price action, creating trading opportunities in both the long and short term.

 

Things to keep in mind when trading crypto currency

There are 2 main things you should pay attention to when trading cryptocurrencies, technical indicators, and support/resistance levels. Technical indicators include (but are not limited to) oscillators such as MACD, RSI, Williams %R and Stochastics. These help us determine how strong a currency is based on moving averages, momentum, volume, and other factors. The following are examples of common technical indicators that you should be aware of when trading crypto; moving average; One of the most popular ways investors trades using their daily or weekly moving averages (also known as MAs). An MA gives traders the average price for an instrument over a specific period.