Support and Resistance
The cryptocurrency industry is considered to be very volatile – which is true. It is therefore important for any trader, whether amateur or experienced, to have a good understanding of how the various metrics and tools are applied to trade volatile currencies. This article has carefully curated a detailed explanation of what support and resistance levels are when it comes to cryptocurrency trading.
It is important to begin by pointing out that with the proper knowledge on how to analyze the support and resistance levels, it will become easier for you to predict future prices, when to buy and when to sell to make profits or avoid losses.
A cryptocurrency’s support level is the value that traders believe the currency will not drop below. The support level is characterized by high demand and buying, as most traders believe that at that price, the asset is undervalued. It is at the support level that most traders prefer to buy at.
Most cryptocurrency traders use the support levels to determine a baseline for determining a currency’s highs and lows. However, you should not rely on this analysis alone as the support and resistance levels tend to change rapidly. It is therefore vital to use other indicators alongside the support level when trading.
As an amateur trader, it is vital to understand how to identify the support level of a coin. The easiest way to spot this support level is by comparing previous price highs and lows. From this data, you can easily see the value the prices kept going back to. It is important to understand that drawing the trend line using past data is easier, but it will become challenging when you want to predict future prices.
When studying the support levels, it is crucial to zoom in on the charts so that you can take note of minor changes on the chart.
The resistance level is the value at which buyers expect the currency to break and exceed. At this level, some traders are on the lookout for an increase in the asset’s value while other traders create resistance by selling their assets. A coin’s value will only increase if it manages to go past its resistance level, i.e. if Bitcoin’s resistance level is at $10,000, it’s value will increase if it can go past the $10,000 mark. This can be achieved when the demand for the asset exceeds the available supply in the market.
Identifying a resistance level is similar to determining the support level. You only have to analyze charts from previous trading periods and draw a line that cuts through the highs of the chart. You can use this technique to determine the trend being followed by the asset and where you should sell or buy at. It is important to note that a resistance level can become the new support level of a currency if its demand can hold it at that point.