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How to trade Crypto with Support and Resistance Lines

In technical analysis, support and resistance are two fundamental ideas. Reading
pricing charts correctly requires an understanding of both the meaning of these
terms and how they are used in real-world situations.
Because of supply and demand, prices fluctuate. Prices increase when supply is
insufficient to meet demand. Prices decrease as supply outpaces demand. When
supply and demand are equal and prices are stable, prices will occasionally fluctuate
sideways.
Technical concepts are relatively simple to explain and justify, but mastering their
application frequently requires years of practise. This is true of many concepts in
technical analysis as well.

What Is Support?

In a downtrend, prices fall because there is an excess of supply over demand. The
lower prices go, the more attractive prices become to those waiting on the sidelines
to buy the shares. At some level, demand that would have been slowly increasing
will rise to the level where it matches supply. At this point, prices will stop falling.
This is support.
Support can be a price zone or a price level on the chart. In any case, support is a
region on a price chart that demonstrates the willingness of buyers to purchase.
Demand will typically outperform supply at this point, halting the price decrease, and
starting it back up again.


What Is Resistance?

Resistance is the opposite of support. Prices move up because there is more demand
than supply. As prices move higher, there will come a point when selling will
overwhelm the desire to buy. This happens for a variety of reasons. It could be that
traders have determined that prices are too high or have met their target. It could be
the reluctance of buyers to initiate new positions at such rich valuations. It could be
for any other number of reasons. But a technician will clearly see on a price chart a
level at which supply begins to overwhelm demand. This is resistance. Like support,
it can be a level or a zone.
Once an area or “zone” of support or resistance has been identified, those price
levels can serve as potential entry or exit points because, as price reaches a point of
previous support or resistance, it will do one of two things: bounce back away from
the support or resistance level, or violate the price level and continue in its prior
direction—until it hits the next support or resistance level.
The timing of some trades is based on the belief that support and resistance zones
will not be broken. Whether the price is halted by or breaks through the support or
resistance level, traders can “bet” on the direction of price and can quickly
determine if they are correct. If the price moves in the wrong direction (breaks
through prior support or resistance levels), the position can be closed at a small loss.
If the price moves in the right direction (respects prior support or resistance levels),
however, the move may be substantial.

Psychology of resistance and support

To illustrate the psychology of support and resistance, let’s look at a few examples of
market players.
First let’s assume there are buyers who’ve been buying a stock close to a support
area.Let’s pretend the amount of support is $60. They purchase some stock at $60,
and it now rises and leaves that level to reach $55. Buyers are satisfied and eager to
purchase more stock at $60 but not at $65. They plan to purchase more if the price
drops back to $60. At $60, they’re generating demand.
Let’s take another group of investors. These are the people that were uncommitted.
They were thinking about buying the stock at $60 but never “pulled the trigger.”
Now the stock is at $65 and they regret not buying it. They decide that if it gets to
$60 again, they will not make the same mistake and they will buy the stock this time.
This creates potential demand.
The third group bought the stock below $60; let’s say they bought it at $50. When
the stock got to $60, they sold their stock, only to watch it go to $65. Now they want
to re-establish their long positions and want to buy it back at the same price they
sold it, $60. They’ve changed their sentiment from sellers to buyers. They regret
selling it and want to right that wrong. This creates more demand.
Now let’s change things up to help understand resistance. Take all the above
participants and say they all own the stock at $60. Imagine yourself as one of the
owners at $60. The stock goes to $65 and you don’t sell. Now the stock goes back to
$60, where you own it. What are you feeling? Regret for not selling it at $65? Now it
goes back to $65 and you sell as much as you can this time. So do the other owners
of the stock. The stock can’t get past $65 and retreats. There are at least 3 groups of
stock owners that are trying to sell their supply at $65. This creates a resistance level
at $65.
These are only a few of the many potential outcomes. If you’ve traded previously,
you’ve likely gone through all of these situations and understood the psychology and
emotions that go along with them. It’s not just you. Numerous other market players
are experiencing the exact same feelings and ideas as you are, and this helps explain
some of the market psychology underlying support and resistance levels as well as
technical analysis in general.


Role Reversal between Support and Resistance

A key concept in technical analysis is that a resistance or support level’s function is
reversed when it is broken. A support level will change from support to resistance if
the price drops below it. A level of resistance that the price has crossed over will
frequently turn into support. It is believed that supply and demand have changed,
causing the level that was breached to play the opposing role, as the price swings
past a level of support or resistance.

Example of Support becoming Resistance in Crypto Day Trading

Below is a nice example how a support lines becomes the resitance line once it was broken.

Example of a support lines becoming a resistance line in crypto day trading
Example of a support lines becoming a resistance line in crypto day trading

Example of Resistance becoming Support in Day Trading Crypto

Below we have an easy to understand example how the resistance lines becomes the support.

Example of a Resistance lines becoming a support line in day trading cryptocurrencies
Example of a Resistance lines becoming a support line in day trading cryptocurrencies

The Fundamentals

Support and resistance can be found in all charting time periods; daily, weekly,
monthly. Traders also find support and resistance in smaller time frames like oneminute and five-minute charts. But the longer the time period, the more significant
the support or resistance. To identify support or resistance, you have to look back at
the chart to find a significant pause in a price decline or rise. Then look forward to
see whether a price halts and/or reverses as it approaches that level. As has been
noted above, many experienced traders will pay attention to past support or
resistance levels and place traders in anticipation of a future similar reaction at these
levels.
Technical analysis is not a precise science, and price reversals or dips below support
levels occasionally occur. Resistance is the same way: Price may change direction
before it reaches the previous resistance level or break above it. Each time, being
open-minded while analysing these chart patterns is necessary. For this reason,
zones are occasionally used to refer to levels of support and opposition.
These price ranges are not magical in any way. Simply said, a large number of market
participants are making trades at comparable levels based on the same information.
Most seasoned traders can relate tales about how an asset’s price tends to plateau
when it reaches a specific level. Assume, for instance, that Cryptoxyz held a stock
stake from April to November with the expectation that the share price would rise.
Let’s say Cryptoxyz notes that the price has come extremely close to going beyond
$290 multiple times over the course of several months but has been unable to do so.
The price level around $290 would be referred to as resistance in this instance by
traders. On the other hand, the price always rises when it reaches $270.The price
level around $270 would then be referred to be support.

Conclusion

Day trading cryptocurrencies isn’t simple. I think this small guide on how to trade with support and resistance lines will improve your day trading a lot. It is one of the most simple, but in my opinion one of the most powerful ways to day trade crypto.

If you need help in finding the right trading set-up you should check out our Telegram and Discord Futures Signals here. They will help you getting started and increase your overal profits.

Co-Author: Crypto xyz

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