Support and Resistance
Support and Resistance:
Support may be a price index where a downtrend is often expected to pause due to a concentration of demand or buying interest. As the price of a coin drops, its demand increases, thus forming the support line .Meanwhile Resistance zones arise due to selling interest when prices have increased.
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 a price of a coin reaches a point of support or resistance, it will do one of two things—bounce back away from the support or resistance level, or break the price level of a coin and continue in its 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 the support or resistance level, or it breaks through, traders can "bet" on the direction of the price of a coin and can quickly determine if they are correct or not. If the price moves in the wrong direction, the position can be closed at a small loss. If the price moves in the right direction, however, the move may be substantial.
How To Find Support And Resistance Lines?
Here are some indicators that help us to find the support and resistance levels;
A popular strategy is to fit a trendline across the price chart for a currency within specific time frames. In an ascending triangle formation, a trendline fitted to the high points marks the resistance while another trendline drawn across the low points reflects support.
This is an advanced technique used to find areas of support and resistance using the Fibonacci retracement tool. Using the price history to form a sequence, Fibonacci retracement produces ratios for significant price points that can be leveraged to find support and resistance.
Peaks and Valleys:
Analyzing the highs and lows of a coin over a period of time is the crux of this strategy. If a coin price reaches similar highs and lows, they indicate strong market sentiments. In this, the frequently observed high and low act as the resistance and support respectively.
A simple strategy that weighs in on the past trends of a coin and produces the average prices for a specified timeframe. Moving averages for different time frames like 10-day or 52-week can be used to find short-term and long-term support and resistance zones.