Support and Resistance Lines
6 min reading
If you are in the number of people who have difficulties with reading and understanding the crypto chart then this article was made for you!
Support and Resistance Lines
The trading industry uses several concepts to describe market movements. One of the most commonly used technical indicators is support and resistance levels. These are some of the basic issues related to the technical analysis of financial markets. Support and resistance lines refer to specific price points on a trading graph that shows massive purchase and sales activity. Support is a price level where a price stops going down, whereas resistance is a level where the price of an asset stops going up.
A support level is one at which there is a tendency to hold the price, thereby preventing it from falling. It is therefore intended to act as a “floor” and is usually driven by a large supply of buyers in a particular price region. With the support level, prices can only collapse when there is strong selling pressure. Traders and chartists usually draw support lines based on previous low points. When a support level is broken, it tends to become a resistance level.
It is always advisable to consider two lows when drawing support lines.
A level of resistance runs contrary to a level of support. It is a level that the price of an asset is unable to penetrate due to strong sales pressure. Due to a large supply of sellers in the price area, the resistance level tends to act as a ceiling. Technical analysts draw resistance lines based on previous high points, a useful technique in particular to predict potential price reversal points. Once a resistance level is breached, it becomes a support level. Also, like support lines, it is always advisable to consider at least two high points when drawing resistance lines. The more points you use, the more reliable it will be. For clarity, support and resistance lines appear on different points on a chart. With support, buyers generally buy at a specific price because the asset is devalued. When buyers, therefore, engage on a particular price, it is somehow difficult for that asset to go below its initial price.
A trader seeing the market near the bottom of the price range waits until the market bounces off of the support level then he trades on a long position. On the other hand, if an asset is overvalued, sellers will take advantage of it. A trader looking to make a profit could initiate a short position near the top of the resistance line with the hope that the price will eventually return towards the bottom of its range. However, when the market approaches a key support/resistance line, the trader waits to see if the price will succeed in breaking through the support/resistance lines before he takes any action.
Difference between resistance and support lines
Support is a price that limits any downward movement of an asset while a resistance line is a price level that deters any upward movement or increase. Support levels are characterized by higher demand and lower supply of assets, while resistance levels are characterized by the higher supply of assets and lower demand.
How to use it on bit4you
Bit4you trading platform provides you with graphs, showing resistance and support lines. On the first part of the graph, the price is very likely to bounce back up from the support line because it defines a strong psychological low in the market. On the second part, the price is always above the resistance level. This mark appears to be restraining further price growth by resisting it.
Advantages of trading with support and resistance lines
Support and resistance lines help to come up with a better trading strategy. Novice traders are prone to incur large losses when trading. But using these lines will help traders create a strategic trading plan to counteract reactive market volatility and make larger profits. They give an overview of current trends in the marketplace. Support and resistance lines supply critical entry and exit points. They help people identify critical opportunities for entering and exiting a trade and act as strong risk management tools.
In conclusion, support and resistance lines are indeed vital for technical analysis in the digital currency market.