Buying and selling crypto can be tricky. Timing is everything—prices may go up or down. Knowing when the price could bounce back up OR stop going up will help you make smart choices and earn more money.
This is where Resistance and Support levels come in. In this blog, we’ll learn what they are, how to find them on a chart, and how to use them to become a better crypto trader.
In trading, a support level is a point on a price chart where an asset’s falling price is expected to stop and reverse. This happens because more buyers start purchasing the asset at this level, increasing demand and preventing further price drops.
For example, if a cryptocurrency’s price falls from $50 to $40, traders might see $40 as a good buying opportunity. Demand increases as more traders buy at $40, creating a “floor” that prevents the price from falling below $40. The price is more likely to rise than drop further at this support level.
Similarly, the resistance level is a point on a price chart where a rising asset’s price is expected to stop and reverse. This happens because more sellers enter the market at this level, increasing supply and preventing further price increases.
For example, if a cryptocurrency’s price rises from $40 to $50, traders might see $50 as a good point to sell and secure profits. As more traders sell at $50, supply increases, creating a “ceiling” that prevents the price from moving above $50. At this resistance level, the price is more likely to fall than continue rising.
| Support Level | Resistance Level |
| A price point where the price stops falling and may rise. | A price point where the price stops rising and may fall. |
| More buyers enter the market at this level. | More sellers enter the market at this level. |
Support and resistance are more than just price markers; they guide trading decisions and risk management.
When you are trading in crypto assets, finding support and resistance for any particular asset is like finding a compass. The two levels help you understand the price chart and also help you make informed decisions regarding your trade. Here, we will guide you through some essential pointers that will help you identify support and resistance for any asset.
One of the easiest ways is to look at the historical price levels of the asset. Find out the levels or points on the price chart where the asset price movement has consistently stopped or paused. These chart points consistently serve as support or resistance for the asset.
Trend lines are an effective way of determining the purchase and sale of a stock. A trend line sloping upward can serve as support, while one that is going downward can be a resistance. The trend lines provide visual cues regarding the potential price movements of the assets.
The psychological price levels very much influence the crypto traders. They tend to make decisions around the round numbers. For example, figures like 10 USD or 60 USD can serve as support or resistance levels because traders tend to make decisions around these numbers.
Besides these essential factors, consider the stock’s volume while evaluating the support and resistance levels. When the support and resistance levels are supported by higher trading volumes, a stronger price significance is indicated. The volume of crypto assets can determine whether the levels are likely to hold or break.
The support and resistance levels in crypto trading help you to understand the market dynamics. Thus, here we are going to explore some powerful trading strategies associated with crypto trading.
When a cryptocurrency asset reaches near the support level, look for signs of stabilisation or trend reversal. It includes bullish candlestick patterns, reduced selling pressure, and positive news catalyst. Buying near the support levels can be an opportunity for the crypto traders to bounce on the profit side.
Just like you must consider purchasing assets near the support levels, selling stocks near the resistance levels is advised. Look for the signs of price peaking. It includes bearish candlestick patterns, overbought situations, or negative news developments. Selling the crypto assets near the resistance levels can be a strategic move to capitalise on the potential pullbacks.
One common mistake that crypto traders make is that they assume the support and resistance levels to be invincible. But, in reality, these points can break, leading to significant price changes. Thus, always look out for the breakouts and the breakdowns.
A breakout is a situation in which the price goes beyond the resistance levels. Conversely, a breakdown is a situation where the price of an asset falls below the support levels. Trading breakouts are situations where the traders buy the stocks even if the levels break resistance and anticipate a further upward momentum.
A trading breakdown involves traders selling their shares even after the price goes below support levels, expecting further price decline.
If a trader can master all these crypto trading strategies evolving around the support and the resistance levels, they can make more informed decisions in the crypto market. These strategies provide a structured approach for traders to capitalise on the price movements of the assets.
Managing risk is paramount if you are in the world of crypto trading. And support and resistance play a crucial role in this process. Here we will check out how they are important in managing the risks.
The support and resistance for the crypto assets serve as a crucial guide for setting up the stop loss orders. While entering a trade, the traders can place a stop loss just below the support or just above the resistance. This way, the stop loss will act as a safety net and prevent potential losses.
Estimating the risk-reward ratios is further aided by the levels of resistance and support. The traders can estimate possible returns against risk by measuring the distance between the entry point and the closest levels of support or resistance. A transaction with clearly defined levels of support and resistance may have a higher risk-reward ratio, which makes it a wise and advantageous decision.
If the traders can effectively incorporate support and resistance into their risk management strategy, they can properly safeguard their capital and improve their trading performance. The support and resistance act as guardrails. They can guide you through the volatile crypto markets and monitor your risk.
Here, we are going to delve into more intricate aspects of Support and Resistance and know them in detail.
The dynamic support and resistance levels are not fixed, unlike their static counterpart. For instance, the moving averages can act as dynamic support and resistance. When the price of a crypto asset approaches a moving average from below, it might find support. And on the contrary, when it reaches from above, it is called a resistance. The dynamic support and resistance offer a real-time overview of the price trends.
After a breakout above resistance, the same level can act as support. Conversely, a breakdown below support can create new resistance.
Example:
BTC breaks $32,000 resistance → on a pullback, $32,000 now acts as support.
One fascinating fact about support and resistance is that they can reverse their roles in reaching breakout and breakdown points. When a price crosses a strong resistance level, it turns into a support. And the traders consider the previous resistance level as their new support.
On the contrary, when the price drops below a strong support level, it can become a resistance. At that time, the traders consider the prior support level to be their new resistance. With the understanding of these advanced resistance and support levels, a trader can gain a deep insight of the price movements. It offers valuable information regarding the market dynamics and helps to make more sophisticated trading decisions.
With the plethora of options available to crypto traders to learn about the market statistics, here we will guide you regarding the best support and resistance zone indicators.
Bollinger bands are three-line bands that are plotted for a fixed 20-day period and are calculated using volume volume-weighted moving average. The Fibonacci bands are one of the most recognised support and resistance zone indicators in the market.
The pivot point analysis considers three points. They are high, low, and the closing point of an asset. When divided by three, the pivot point is achieved. The pivot point analysis, upon calculation, offers three supports and three resistances. It gives an idea about the range and segments of the market.
Just like the Fibonacci Bollinger bands, this indicator plots the fib levels between the low and high of the user-specific time frame. Using this, the Fibonacci lines are automatically traced, which relieves the pressure on the traders.
ALSO READ: A Beginner’s Guide to Crypto Technical Analysis
In the realm of cryptocurrency trading, the levels of support and resistance serve as beacons for traders. They support educated decision-making and effective risk management by assisting in the analysis of the market’s ups and downs. To get the most out of it, compile the knowledge you have learned here and use it in practical situations.
You can select Mudrex as your trading partner if you’re looking to begin trading cryptocurrencies. To accelerate your trading career, get the Mudrex app from the Play Store right now.
The support levels are where the crypto asset prices tend to stop falling, whereas the resistance levels are where the crypto prices tend to stop rising. They are key indicators in managing the crypto assets efficiently.
The traders can use the chart patterns, historical data, volume analysis, and moving price averages to identify the resistance and support levels in crypto trading.
The strategies based on these levels are buying near the support levels and selling near the resistance levels, or waiting for the breakdowns and breakouts to confirm the trends.
The support and resistance levels help in setting the stop loss orders and determining the risk-to-reward ratio by highlighting the potential price reversal points.
The major indicators include Fibonacci retracement levels, pivot points, and auto fib, which offers clear zones where the buying and selling pressure might take place.
