Tag: xbt, cryptocurrency price, support and resistance level, support line, resistance line, entry and exit point, market concept
What is support and resistance level?
- Support Level
A support level refers to the price line that a cryptocurrency does not fall below within a period of time. In terms of technical analysis, the support level can be charted by drawing a line along the lowest lows within a time range. The support line can be flat or slanted up or down following the overall price trend. Support level can be imagined as a floor that holds things.
- Resistance Level
A resistance level is the price line at which the price of a cryptocurrency meets pressure on its way up. In technical analysis, the resistance level can be charted by drawing a line along the highest highs within a time range. Resistance can be contrasted with support. Resistance level can be imaged as a ceiling that prevents uptrend.
The Difference Between Support Level and Resistance Level
Support and resistance are complementary concepts. Resistance establishes the current price ceiling for the cryptocurrency, and the support forms the floor. The support level is that the price of a cryptocurrency does not go below the line while the resistance level is the price point at which a cryptocurrency is hard to grow past.
What Support and Resistance Level Tell?
Once an area of support or resistance has been identified, those price levels can serve as a potential signal to enter or exit the market. When the price of a cryptocurrency reaches a point of support or resistance, it will bounce back away from the support or resistance level, or break through the price level and continue in its direction—until it hits the next support or resistance level. When the price action breaches either support or resistance, it is considered to be a potential trading opportunity.
As the price of the cryptocurrency drops, traders’ demand for the crypto increases, thus forming the support line. Correspondingly, when the price increases, the resistance area forms due to the selling interest of the traders. Support and resistance levels can be created by limit orders or simply the market action of traders and investors.
Limitations of Support and Resistance Level
Generally, support and resistance level is more of a market concept than a technical indicator. There are far better technical analysis tools that incorporate these concepts, like moving average, trendlines, which are more dynamic than just forming a support or resistance line across recent lows or highs.
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