Support and resistance are line indicators used in technical analysis to help crypto traders identify trading opportunities. Applied to a trading chart, support and resistance levels create a trading zone that marks where a crypto asset price tends to bottom out (buy signal) and when it tends to top out (sell signal).
Support and resistance are used in technical analysis to help crypto traders spot and take action on potential trend reversals or continuations.
The longer period of time that support or resistance levels have been tested, the more importance these price levels will have.
Crypto traders have multiple ways to identify support and resistance levels, including using static trendlines, dynamic moving averages, or Fibonacci Retracement.
Trendlines can be applied in a horizontal way (“static”) to a chart to find barriers to resistance and support.
A moving average like the 20-day MA helps you identify dynamic (or moving) support and resistance trend lines.
Fibonacci Retracement uses a mathematical model to detect further price support or resistance levels by analyzing areas of pull backs (“retracement”) of a price trend. Traders can chart a high and low price point and the Fib retracement indicators create support and resistance levels between these points.
Each level has an associated percentage indicating the level of retracement: 23.6%, 38.2% 61.8% and 78.6% are most commonly used.
There are two main ways to trade using support and resistance:
In order to set up buys and sells according to support and resistance levels, once you recognize an emerging pattern, analyze the following:
Previous price moves - Check for the asset’s price to fall in line with a previous area of support or resistance. When preceded by a steep drop or spike in price, support and resistance zones are more significant.
Number of touches - The more times a price has tested a support or resistance area, the more significant that price level becomes. Repeated bounces attract the notice of other traders who will begin making trading decisions based on those movements.
Volume & timing - The strength of the support or resistance level depends on how much buying or selling has taken place at a certain price level. Traders often will trade repeatedly around the same price levels. If strong activity and high volume is followed by a price drop, selling will likely occur, returning the price back to that level.
By identifying and analyzing support and resistance levels, traders often spot chart patterns and use them as insights into potential outcomes.
It’s easy to spot support and resistance lines in a sideways market because the tops and bottoms are generally better defined. That means the asset price has traded within a relatively stable range without distinct trends for a period of time.
Quadency’s Grid Trader can help traders make the most of support and resistance levels:
No one can say for sure what a crypto’s price will be tomorrow. But by knowing how to determine and analyze support and resistance levels, traders can use these historical indicators to gain insight into when a price might bounce or be supported.
Support and resistance are used in technical analysis to help crypto traders spot and take action on potential trend reversals or continuations.
The longer period of time that support or resistance levels have been tested, the more importance these price levels will have.
Crypto traders have multiple ways to identify support and resistance levels, including using static trendlines, dynamic moving averages, or Fibonacci Retracement.
Trendlines can be applied in a horizontal way (“static”) to a chart to find barriers to resistance and support.
A moving average like the 20-day MA helps you identify dynamic (or moving) support and resistance trend lines.
Fibonacci Retracement uses a mathematical model to detect further price support or resistance levels by analyzing areas of pull backs (“retracement”) of a price trend. Traders can chart a high and low price point and the Fib retracement indicators create support and resistance levels between these points.
Each level has an associated percentage indicating the level of retracement: 23.6%, 38.2% 61.8% and 78.6% are most commonly used.
There are two main ways to trade using support and resistance:
In order to set up buys and sells according to support and resistance levels, once you recognize an emerging pattern, analyze the following:
Previous price moves - Check for the asset’s price to fall in line with a previous area of support or resistance. When preceded by a steep drop or spike in price, support and resistance zones are more significant.
Number of touches - The more times a price has tested a support or resistance area, the more significant that price level becomes. Repeated bounces attract the notice of other traders who will begin making trading decisions based on those movements.
Volume & timing - The strength of the support or resistance level depends on how much buying or selling has taken place at a certain price level. Traders often will trade repeatedly around the same price levels. If strong activity and high volume is followed by a price drop, selling will likely occur, returning the price back to that level.
By identifying and analyzing support and resistance levels, traders often spot chart patterns and use them as insights into potential outcomes.
It’s easy to spot support and resistance lines in a sideways market because the tops and bottoms are generally better defined. That means the asset price has traded within a relatively stable range without distinct trends for a period of time.
Quadency’s Grid Trader can help traders make the most of support and resistance levels:
No one can say for sure what a crypto’s price will be tomorrow. But by knowing how to determine and analyze support and resistance levels, traders can use these historical indicators to gain insight into when a price might bounce or be supported.
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Quadency is a cryptocurrency portfolio management platform that aggregates digital asset exchanges into one easy-to-use interface for traders and investors of all skill levels. Users access simplified automated bot strategies and a 360 portfolio view with a free account.
Disclaimer: The content of this article is for general market education and commentary and is not intended to serve as financial, investment, or any other type of advice.
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