Support and Resistance Levels

This is one of the most widely used concepts in cryptocurrency trading and it refers to levels on a cryptocurrency chart that tend to act as barriers that prevent the btcusd price of an asset from getting pushed beyond a certain point in a particular direction.

Support

This level prevents the btcusd price of an asset from getting pushed downwards and therefore it is regarded as the floor because it prevents the btcusd trading market from moving downwards past a certain point.

Example:

On the cryptocurrency trading example illustrated below you can see that btcusd price moved down until it hit a support

Once btcusd price hit this level it slightly bounced back up, then resumed going down until it hit the support again.

This process of hitting a level and bouncing back is called testing the support.

The more times a support is tested and the btcusd trading market bounces up the stronger it is - the cryptocurrency trading example illustrated below this level was tested three times without breaking. Finally the btcusd trading market bitcoin trend reversed and started moving in the opposite direction.

Once this level has been determined traders use it to place their cryptocurrency orders to buy bitcoin at the same time putting a stop loss a few pips below it.

In the cryptocurrency trading example above the btcusd trading market did not move below this area. It is an area where btcusd price cannot break lower.

These regions form good points where btcusd price trend in a downward bitcoin trend is likely to reverse and get support and start moving upwards.

The demand to buy bitcoin at this point will be greater and therefore providing a good point to start a buy bitcoin trade, while placing stops some pips just below.

This support is also use by short bitcoin sellers as a target where to set their take profit for their short sell cryptocurrency trades.

This is another reason why the bitcoin trend is likely to reverse or consolidate at this level because once the sellers close their sell cryptocurrency trades then momentum of the downward bitcoin trend reduces and a consolidation will happen after which the direction is likely to reverse.

Resistance

This level prevents the btcusd price of an asset from getting pushed upwards these levels are therefore regarded as the ceiling because these levels prevent the btcusd trading market from moving upwards

Example:

On the cryptocurrency trading example illustrated below you can see that btcusd price moved up until it hit a resistance.

Once btcusd price hit this level it retraced slightly the resumed going up until it hit the resistance again.

The resistance holds and is tested five times without breaking.

The more times a resistance is tested the stronger the it is.

Once this level has been determined traders put their cryptocurrency orders to sell at this level and at the same time putting a stop loss a few pips above it.

In the cryptocurrency trading example above the btcusd trading market did not move above this area. This region shows an area where btcusd price cannot break above.

These levels form good points where a bitcoin price in an upward bitcoin trend is likely to reverse after some resistance and start moving downwards in the opposite direction.

This shows that the demand to sell bitcoin at this region will be greater and therefore providing a good point to start a sell bitcoin trade, while placing stops some pips just above this level.

This resistance is also used by buyers as a target where to set their take profit for their bullish trades. T

his is another reason why the bitcoin trend is likely to reverse or consolidate at this level because once the buyers close their sell cryptocurrency trades then momentum of the upward bitcoin trend reduces and a consolidation will happen after which the direction is likely to reverse and start moving down.