Support And Resistance In Technical Analysis Of Crypto Markets

Tarulika  |  Apr 11, 2020

Imagine you are bouncing a ball inside your house. So, two barriers will limit the flight and fall of the ball-floor and ceiling. Similarly, in crypto trading, two barriers, namely support and resistance, will restrict the price movement. So, let us try to enhance your understanding of the crypto markets by this article on support and resistance in technical analysis.

Support and resistance barriers are the essential tools of analysing the charts of the crypto marketplace as they have the long last imprint on an asset. Both of the barriers (in the form of horizontal or angled lines) signifies the market psychology related to demand and supply of crypto coins.

What Are Support and Resistance In Technical Analysis?


What are resistance and support levels in crypto analysis


Let us try to find out in brief what is support and resistance levels and how they can be studied while doing the technical analysis of the crypto marketplace and can help in with better trading options and also hedge out the risks associated with cryptocurrencies.

What Is Support Level?


Support is that price level at which the price of any particular crypto asset is supposed to bounce back up after a downtrend. At this point, demand for the asset usually tends to high and also intercepts the price from lowering down further. If the price of the asset continues to lower down, but the concentration of buy pressure manages the prices from falling, this level is called the temporary floor or support level.

What Is Resistance Level?


Resistance is that price level at which the price of any particular crypto asset is supposed to bounce back down after an uptrend. At this point, supply for the asset usually tends to high and also prevents the price from increasing up further. The resistance level is considered to be the maximum price of an asset at a particular point of time. If the price of the asset continues to higher up, but the concentration of sell pressure manages the prices from rising, this level is called temporary ceiling or resistance.

Thus, support and resistance in technical analysis identify the uptrend and downtrend of the crypto markets depending upon the sell and buy pressure in the markets and the fluctuated prices based on them.

How To Read Support And Resistance Charts?


For adequately utilising the support and resistance in technical analysis, it is mandatory to initiate learning the support and resistance charts. The best way to identify the level is first to compare the data with previous highs and lows of the prices. If you are analysing the past trends and reading the present charts, then you can draw the trend line to define the support and resistance levels. Be careful, and don't be trapped into the false breakout webs. You can start investing with a small amount of investment based on analytical skills. Gradually with the time, your skills would enhance, and you may turn to the ore experienced crypto trader.


Support and resistance in technical analysis charts


What Are Support Resistance Indicators?


Support and resistance indicators are utilised by the beginners to study or draw the charts for support and resistance in technical analysis. There are a few indicators which can help you to draw as well as read the charts for enhancing the profits from crypto investments.

  • Fibonacci Retracement: Fibonacci ratios are being used to divide the vertical distance between the two extreme pivots of your choice to identify the horizontal lines for support and resistance.
  • Donchian Channels: High and low boundaries can be plotted by identifying the price breakouts that happened at above or below the price history of assets.
  • Several other indicators can be deployed in the analysis, but for the beginners, indicators mentioned above can be an easy way to identify the levels of support and resistance.

    How To Utilise Support And Resistance For Crypto Trading?


    Support and resistance trading can help you to chalk out the plan of buying and selling the cryptocurrencies. Once you initiate the process of understanding the charts and patterns of both the barriers, you may protect your money at the time of break of support and can gain more profits by investing money at the point near to resistance break. As the cryptocurrency is volatile, the profit and loss depend on the strength of the breakdown of the two levels. Following strategies can also be followed for trading based on support and resistance technical analysis:


    • Range Trading: When the market is bounded by range, traders try to sell the assets when the market bounces off resistance and try to buy the assets when the price bounces off the support.
    • support and resistance in technical analysis range trading


      • Pullback strategy: Uncertainty is not the constant condition in the crypto markets. After some point in time, the market starts showing either uptrend or downtrend. So, according to this strategy, it is being advised that one must wait for a pullback before trading in the markets to avoid false breakouts.
      • pulback strategy

        • Trendline Strategy: By using this strategy, crypto traders draw a connecting line of few lows in an uptrend(support) and few highs in a downtrend(resistance). So, during the strong markets, prices are expected to bounce off from the trendline and will move in the path of trend. And hence, by analysing the current trend, you can increase your chances to trade and gain from the investment.

          Trendline strategy


          Mainly, these three strategies are being followed by the crypto traders based on the levels of support and resistance in technical analysis. As you start learning to analyse the market, you may get familiar with other complicated strategies as well.

          Final Thoughts


          Analysing the crypto markets may sound tedious, but if you wanted to invest in the markets and wish to earn huge profits from your funds, then you have to learn to analyse the charts based on different indicators, sometimes analysing the price trend while other time understanding the demand and supply psychology of the market. Support and resistance in technical analysis are not that difficult to understand for getting better results from crypto markets. There is a simple rule, place your order near support and resistance, depending upon the bullishness and bearishness of the position of trader.

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