In the midst of the growing digital investment trend, understanding how crypto trading works is important, especially for those who want to profit from this market. One of the keys to success in crypto trading is understanding technical analysis, including knowing terms such as support and resistance. For beginners, the terms support and resistance may sound foreign, but understanding them will provide a big advantage in your crypto trading strategy. Let's start this adventure by exploring the basics of technical analysis and how it is applied in crypto asset trading.
Basics of Technical Analysis
Before diving into technical analysis, it is very important to first understand what technical analysis is. In general, there are two analyzes that are often used in crypto trading, namely fundamental analysis and technical analysis.
Fundamental analysis is an analysis that involves evaluating various economic, financial and other elements that have the potential to influence the value of an asset. This approach aims to understand the intrinsic value of an asset or security.
Meanwhile, technical analysis is analysis carried out by observing price patterns through various graphic analytical tools to identify the strengths and weaknesses of a crypto asset, as well as predict future price trends.
Through these charts, analysts can identify the support and resistance limits of the crypto asset, as well as other indicators that help conclude the current condition of the asset.
Also read: Fundamental Analysis vs Technical Analysis: Complete Guide on How to Use Them
Get to know Support and Resistance
In technical analysis, it is very important to understand the concept of support and resistance. Support and resistance are basically indicators marked as horizontal lines on a trading chart. This horizontal line pattern tells the price movement of crypto assets.
The support limit is the point at which the purchase rate of a crypto asset increases significantly. This is a zone where huge demand arises because traders consider the price of the asset to be low.
When the price of a crypto asset approaches a support level, there is usually a surge in demand that is enough to stop the price from falling further. In some cases, this can even reverse the price direction to upwards.
On the other hand, the resistance limit is the point where there is excessive supply without sufficient demand. When the price of a crypto asset approaches a resistance level, abundant supply often pushes the price back down.
Generally, buyers will gather at the support line and then sell their crypto assets when the price approaches the resistance line.
Example of Support and Resistance
In simple terms, the support limit is the highest level of the crypto asset price, while the resistance limit is the lowest price the crypto asset has.
To make it easier for you to understand, below is an example of support and resistance limits on a crypto asset chart.
How to Use Support and Resistance Indicators
The easiest way to use support and resistance level indicators is to observe price movement charts in the form of horizontal lines.
Horizontal support or resistance lines can be created by connecting points between trend peaks or valleys. If a support or resistance boundary is broken, this means there has been a major change in market sentiment, a concept known as polarity.
For example, if the price breaks through a predetermined resistance limit, that level is no longer considered an optimal selling point, but instead becomes a good entry point for buyers because it reduces selling pressure.
Conversely, if buying breaks through the support limit, that level will turn into a new resistance limit because traders are no longer interested in buying at the previously set price.
If the price breaks the support boundary downwards, this is considered a bearish development, and the asset usually falls further than the previous price.
However, if the price breaks the resistance line, this condition is considered bullish, and the price tends to follow an uptrend until the next resistance level is identified.
Conclusion
Support and resistance levels act as barriers to crypto price action over a certain period. However, this level is not permanent because it will shift along with changes in the level of sales and purchases of an asset. When this happens, polarity takes effect, turning support into resistance or vice versa.
The presence of support and resistance boundaries can make it easier for crypto traders to identify strong supply and demand zones, so the identification of these two aspects is often considered an important element in trading.
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DISCLAIMER : This article is informational in nature and is not an offer or invitation to sell or buy any crypto assets. Trading crypto assets is a high-risk activity. Crypto asset prices are volatile, where prices can change significantly from time to time and Bittime is not responsible for changes in fluctuations in crypto asset exchange rates.
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