There are already high number of websites which provide technical analysis of Bitcoin's price movement. These websites rely on a lot of technical indicators or tools to put up a projection for Bitcoin's future price. Among all the indicators, 'support' and 'resistance' remain the two most powerful tools for trading Bitcoin skilfully.
As you may already know that support and resistance in any market are two fine edges for the ebbs and flows of prices over a specific time interval. However identifying these edges correctly require a little more technical knowledge. But, if you learn how to correctly calculate and use these pivotol edges in trading Bitcoin, you can just be the next pro crypto trader.
So, read on this step by step guide to understand 'suport and resistance' and how to use it effectively while trading Bitcoin and Crypto-currency.
What are Support and Resistance level?
To understand 'support' and 'resistance', you first need to understand a bit about price charts for any cryptocurrency.
Price charts often run on a 'time frame'. They go like hourly, 4 hours, daily, weekly, monthly and so on. These time frames present a certain price range in which a coin is moving. Let's say Bitcoin is moving from $40k to $42k on daily time frame for 7 days. Bitcoin has come closer to $40K twice in this period and went up to $42k twice as well.
In this scenario $40k is 'support' and $42k is 'resistance' for Bitcoin
Now, in simple words, 'Support' is the price level from where Bitcoin bounces back or the price doesn't fall further to a certain price. 'Resistance' is the price level from when Bitcoin slides back or doesn't go past it easily.
Additionally, we can co-relate support and resistance with 'buying and selling in a certain price range for a period of time'. In the above instance when Bitcoin reached at $40k, buyers take over the market and when it reached at $42K, there are more sells than buys so the price declines.
How to Detect 'Support and Resistance'
However there's much more maths involved in this, in case you yourself start doing it. I would suggest you to look at charts on exchanges. Popular exchanges like Binance offer every insight on support and resistance levels. You can easily draw a trendline that would suggest you a very close support and resistance levels. For example look at the image below.
Tip- Always keep in mind to select correct time frames while drawing lines. For short term trading, draw lines for for shorter time periods and for long term trades draw lines for longer time period.
How to use 'Support' or 'Resistance' levels in crypto
First things first, unless you're technically a very sound trader, don't be a day-to-day trader. Secondly, if you have decided to be one, then just play near the line. What I mean is 'always place an order near the line and finish it near the line.
You can place a sell order near the resistance line and take out profits near the resistance line as well.
You can also place a buy order near the support zone and take out your profits near this line as well.
The important part of this is that 'day trading knows no emotion. You need to act sensibly without fear and greed both.'
To understand it follow this image description.
What happens if 'support or resistance' breaks out?
Nothing much just a few million are erased out of those who are at the wrong edge. If you are short selling near the resistance and it breaks out, your position gets liquidated and the same happens to someone who is long while the support is breached.
Never mind, these situations aren't anything to fear for long time HODLERS. Only day-traders (dreamers) get affected.
However, there are techniques that you can apply to save yourself from total loss. Whenever you day-trade, don't forget to put 'stop loss' and 'take profit'. With dangerously volatile crypto, these are must to remember, or be ready to face the demons of crypto.
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