Topic: [2018-08-20]Crypto Trading 101: An Introduction to Support and Resistance (Read 138 times)

It's quite funny seeing how Coindesk, which keeps missing prediction targets time on time again, thinks it's in a position to tell others what to look for.

There isn't a better way for the average person to trade this market other than to respect the downtrend. If there has been one consistent and predictable aspect of this market, then it has been the lower high lower low formation. Purely based on that, the next lower high will settle around $7000 (give or take a few hundred, but definitely way below $8000) and that's where you want to open your short.

The only alternative is to not trade at all and just hodl, which is probably the safest option for people.

New to crypto trading? Read CoinDesk's full set of guides.

Are you a crypto trader struggling to find a footing in a volatile crypto market?

If yes, then the first thing you need to master is the art of identifying support and resistance levels.

Imagine bouncing a ball inside your house. There are two barriers that will limit the flight and fall of the ball – your floor and ceiling. In trading, there are similar barriers that limit the movement of price action known as support and resistance.

Such barriers in trading can have long-lasting effects on an asset, since price action rarely forgets its past. If traders regard a certain price level as a great entry or exit point, it will likely continue to act as a barrier for prices until all of their respective needs are satisfied.

Support

For example, buyers will generally continue to buy at a specific price, given the asset is perceived as undervalued, until all of their demand is fully absorbed by the market. So, if buyers engage at X price and the price moves upward only to later return, the same buyers will look to defend their positions at X and potentially add more to their positions.

New buyers will see that price fell no further than X before, so are likely to consider it a safe entry. This concentration of buy pressure will prevent price from falling any further, creating a temporary floor known as support.

Resistance

On the other hand, if an asset is perceived as overvalued at a certain price level, sellers will be sure to take advantage. Here, those large buyers from before will look to exit their position and take profit. It's also possible traders will enter "short" positions at this level, given the perceived over-valuation, increasing the market's sell pressure.

Just like when there was high buy pressure, this concentration of sell pressure will force the price level to act as a barrier, except this time it will act as a ceiling, rather than a floor, known as resistance.

Horizontal Support & Resistance
The most important and easiest to identify support and resistance levels take the shape of horizontal lines as a result a trend being rejected repeatedly at a very similar price point.

Horizontal support or resistance lines can be created by simply "connecting the dots" between trend peaks or valleys as seen in the chart below.


See more: https://www.coindesk.com/crypto-trading-101-an-introduction-to-support-and-resistance/