Support and resistance levels in crypto trading: how to identify it?
Support and resistance levels are considered the basis of technical analysis. Quite a lot of trading systems are built on their basis. Therefore, this is the base that every trader should know.
If you are new to trading this article will help you understand:
- what the levels of resistance and support are
- why they work
- how to find levels on the chart
- trading systems for levels
What are the levels of support and resistance?
In simple terms, support and resistance levels are important price points to which price reacts. Levels appear where the strength of market participants comes to balance and has no power to continue its movement, usually at these points price slows down and turns in the opposite direction.
Support level is the price level from which price reverses on a downward approach. This level seems to support the price, not letting it go lower.
Watch NOW on Youtube My secret approach of how find Support and Resistance | key levels
Resistance level is a price level from which price reverses when approaching in the upward movement. This level seems to resist the price, preventing it from going higher.
Some more examples of support and resistance levels. In the first case, the level acted as support, as soon as the price overcame it there was a strong correction.
And the resistance level, after the strength of buyers outweighed, the level broke and the price continued its way up.
Why do they work?
As we've noted, support and resistance levels are important psychological and price points. Traders from all over the world see the same levels. Many traders open their deals from levels, close deals before levels, expect price reaction at levels or when levels are crossed. Most strategies are based on levels. It's because all traders know that they work.
How to find levels on the chart?
- Strong levels on senior timeframes: month, week and day.
- Historical highs and lows.
- High and Low levels on senior timeframes.
- Levels with a large number of touches
With these rules and the examples above, you can easily determine the levels on any asset.
What are the trading systems for the levels?
The main trading systems for the levels: breakout, rebound and false breakout.
Breakout is a system in which traders buy an asset immediately after overcoming the resistance level, or sell it after overcoming the support level. At the same time setting a stop loss on the level, and expect the trend to continue. You can learn more about the breakout system in this article.
False breakout is a system in which the asset breaks through the level sharply, immediately returns to the level and moves in the opposite direction. With a false breakout, big players gain liquidity. You can read more about this system in this article.
Rebound from the level is a simple strategy in which the price comes clearly to the level, rebounces sharply and moves in the opposite direction.
Every trader must know the basic concepts of trading. Levels are the basis of the basics, with the help of this article, you can begin to define levels and use strategies: breakout, rebound and false breakout.