In recent years, cryptocurrencies have gained massive popularity, attracting more investors — in fact, there are over 300 million crypto users worldwide. While the industry’s total value has significantly increased, digital currencies volatility has always been a concern. As an investor, you probably wonder, what are the highest or lowest prices a digital currency can ever reach? Can you use support and resistance concepts to analyze crypto trading better?
Understanding Support and Resistance…
Support and resistance refer to the trading points on trading charts where massive buying and selling activities occur. The support level is the point where the price of a digital currency stops deteriorating or falling. On the other hand, a resistance level is when the price stops increasing. In crypto trading, these terms can be used to predict market movements before making a trading decision.
How can you use support and resistance levels to improve your trading and earn maximum benefits?
Below are three ways you might want to consider.
1. Look Out for False Breakouts
A false breakout occurs when the prices of slightly further than expected. For example, if the projections had shown a support level occurring at $20, then there is a possibility that the value could drop to $19.95 or $19.90 before rallying again. Always expect some variability support and resistance levels are not the actual prices but approximations.
Although false breakout does not always happen, it presents an appropriate opportunity to trade. If you plan to use this opportunity, wait for a false breakout and use the opportunity to get into the marketplace. For instance, if you notice that the trend on the trading chart is moving up, that means that price is pulling back to support. Before you invest, allow the price to break below the support level and purchase when it starts to rally back beyond support. Likewise, the price begins pulling back to resistance when the trend is down, allowing the value to break beyond resistance and short-sell the assets when the price drops below resistance.
While this technique looks promising, relying solely on it may not be the best investment method. For example, false breakouts do not always happen, and if you decide to wait until they occur, you may miss some profitable opportunities to trade. We recommend that you take advantage of any trading opportunities as they come without necessarily waiting for false breakouts.
2. Learn to adapt your trading decisions to new resistance and support levels
One major thing you need to know as an investor is that support and resistance levels keep changing; thus, your decisions should be flexible to adapt to these changes. It is critical to note the last low and last high during an uptrend to make the right decisions. A lower low indicates a potential trading reversal, that is, the trend will potentially change. However, if the prices make a new high, that can confirm the uptrend.
If you are trading, focus on the current trends that matter the most, i.e., focus on what is happening today. Avoid over-analyzing the prior or future support and resistance levels, as that may distract you from paying attention to potential opportunities.
So, how do you keep track of the level changes?
Mark minor and major support and resistance levels on your trading chart to help you quickly analyze the current trends, ranges, and chart patterns. Once the value of any level has broken through the support and resistance line, you can erase it. For example, if you had marked $10 as your support level and a trend occurs that breaks through it to $15, then your new support level mark will be $15, delete the previous mark at $10. Trading off resistance and support requires a lot of practice. We recommend that you practice with a demo account for several months before trading with real money.
3. Use of Trendlines
If you are trying to understand the technical analysis and trading off of charts, you must familiarize yourself with the trendlines. They are horizontal or angled lines used to highlight resistance and support levels. They show price movements within a given period.
- Ascending Trendline
These lines are drawn during an uptrend. For instance, when the prices increase, the highs of the trend rise accordingly, and you can connect the dots (marks on price values) to create an ascending line. This results in an angle of ascent that shows the strength of the price. In addition, you can create an ascending trendline by connecting the highs of the trend to visually compare the strength of the price and the strength of the overall trend.
- Descending Trendline
A drop in the price results in a fall on the highs of the trend. Thus, connecting the marks on the chart creates a descending line reflecting on the downward price movement, indicating a downtrend.
- Horizontal Trendline
A horizontal line is drawn if the price does not increase or decrease or stalls and reverses in the same price area on different occasions in succession. This line implies that the market struggles to go beyond a specific price.
Reaping the benefits of crypto trading requires knowledge, patience, and practice. Learn how to make better investment decisions by keeping up with our IXFI Blog, especially the Smartvestments series.
You can also check our main trading platform, IXFI, to learn more about the rises and falls of crypto prices as well as to solve all your trading needs in one place.
Disclaimer: The content of this article is not investment advice and does not constitute an offer or solicitation to offer or recommendation of any investment product. It is for general purposes only and does not take into account your individual needs, investment objectives and specific financial and fiscal circumstances.
Although the material contained in this article was prepared based on information from public and private sources that IXFI believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and IXFI expressly disclaims any liability for the accuracy and completeness of the information contained in this article.
Investment involves risk; any ideas or strategies discussed herein should therefore not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal financial and fiscal objectives, needs and risk tolerance. IXFI expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.
