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Beginners Guide: How to trade Crypto with Support and Resistance

Easily master cryptocurrency trading with support & resistance. Understand price psychology, role reversal & AI tools for successful crypto day trading.

Crypto Trader made with AI for trading with support and resistance with AI
Crypto Trader made with AI for trading with support and resistance with AI

Learn How to Trade Cryptocurrencies

In technical analysis, support and resistance are two fundamental ideas. Reading pricing charts correctly requires an understanding of both the meaning of these terms and how they are used in real-world situations. Because of supply and demand, prices fluctuate. Prices increase when supply is insufficient to meet demand. Prices decrease as supply outpaces demand. When supply and demand are equal and prices are stable, prices will occasionally fluctuate sideways. Technical concepts are relatively simple to explain and justify, but mastering their application frequently requires years of practise. This is true of many concepts in technical analysis as well.

Crypto Day Trading Fundamentals

Technical analysis is not a precise science, and price reversals or dips below support levels occasionally occur. Resistance is the same way: Price may change direction before it reaches the previous resistance level or break above it. Each time, being open-minded while analysing these chart patterns is necessary. For this reason, zones are occasionally used to refer to levels of support and opposition. 

These price ranges are not magical in any way. Simply said, a large number of market participants are making trades at comparable levels based on the same information. 

Most seasoned traders can relate tales about how an asset’s price tends to plateau when it reaches a specific level. Assume, for instance, that Cryptoxyz held a stock stake from April to November with the expectation that the share price would rise. 

Let’s say Cryptoxyz notes that the price has come extremely close to going beyond $290 multiple times over the course of several months but has been unable to do so. The price level around $290 would be referred to as resistance in this instance by traders. On the other hand, the price always rises when it reaches $270.The price level around $270 would then be referred to be support.

What is Support? What are Support Lines in Crypto Trading? 

Trade crypto with the help of support and resistance lines - price chart example
Trade crypto with the help of support and resistance lines – price chart example

In a downtrend, prices fall because there is an excess of supply over demand. The lower prices go, the more attractive prices become to those waiting on the sidelines to buy the shares. At some level, demand that would have been slowly increasing will rise to the level where it matches supply. At this point, prices will stop falling. 

This is support. Support can be a price zone or a price level on the chart. In any case, support is a region on a price chart that demonstrates the willingness of buyers to purchase. Demand will typically outperform supply at this point, halting the price decrease, and starting it back up again.

What is Resistance? What are Resistance Lines in Crypto Trading?

Resistance is the opposite of support. Prices move up because there is more demand than supply. As prices move higher, there will come a point when selling will overwhelm the desire to buy. This happens for a variety of reasons. It could be that traders have determined that prices are too high or have met their target. It could be the reluctance of buyers to initiate new positions at such rich valuations. It could be for any other number of reasons. But a technician will clearly see on a price chart a level at which supply begins to overwhelm demand. This is resistance. Like support, it can be a level or a zone. 

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 price reaches a point of previous support or resistance, it will do one of two things: bounce back away from the support or resistance level, or violate the price level and continue in its prior 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 or breaks through the support or resistance level, traders can “bet” on the direction of price and can quickly determine if they are correct. If the price moves in the wrong direction (breaks through prior support or resistance levels), the position can be closed at a small loss. If the price moves in the right direction (respects prior support or resistance levels), however, the move may be substantial.

Crypto day trading with support and resistance lines - price chart example
Crypto day trading with support and resistance lines – price chart example

Psychology of Resistance and Support in Crypto Trading

To illustrate the psychology of support and resistance, let’s look at a few examples of market players. 

First let’s assume there are buyers who’ve been buying a stock close to a support area.Let’s pretend the amount of support is $60. They purchase some stock at $60, and it now rises and leaves that level to reach $55. Buyers are satisfied and eager to purchase more stock at $60 but not at $65. They plan to purchase more if the price drops back to $60. At $60, they’re generating demand. 

Let’s take another group of investors. These are the people that were uncommitted. They were thinking about buying the stock at $60 but never “pulled the trigger.” Now the stock is at $65 and they regret not buying it. They decide that if it gets to $60 again, they will not make the same mistake and they will buy the stock this time. This creates potential demand. The third group bought the stock below $60; let’s say they bought it at $50. When the stock got to $60, they sold their stock, only to watch it go to $65. Now they want to re-establish their long positions and want to buy it back at the same price they sold it, $60. They’ve changed their sentiment from sellers to buyers. They regret selling it and want to right that wrong. This creates more demand. 

Now let’s change things up to help understand resistance. Take all the above participants and say they all own the stock at $60. Imagine yourself as one of the owners at $60. The stock goes to $65 and you don’t sell. Now the stock goes back to $60, where you own it. What are you feeling? Regret for not selling it at $65? Now it goes back to $65 and you sell as much as you can this time. So do the other owners of the stock. The stock can’t get past $65 and retreats. There are at least 3 groups of stock owners that are trying to sell their supply at $65. 

This creates a resistance level at $65. These are only a few of the many potential outcomes. If you’ve traded previously, you’ve likely gone through all of these situations and understood the psychology and emotions that go along with them. It’s not just you. Numerous other market players are experiencing the exact same feelings and ideas as you are, and this helps explain some of the market psychology underlying support and resistance levels as well as technical analysis in general.

Role Reversal between Support and Resistance

A key concept in technical analysis is that a resistance or support level’s function is reversed when it is broken. A support level will change from support to resistance if the price drops below it. A level of resistance that the price has crossed over will frequently turn into support. It is believed that supply and demand have changed, causing the level that was breached to play the opposing role, as the price swings past a level of support or resistance.

Crypto Day Trading with Support and Resistance and Artificial Intelligence Tools

Day trading cryptocurrencies can be assisted by AI tools. Crypticorn’s technical analysis is already done by artificial intelligence. However, you should always attempt to confirm what you see. Support and resistance lines are a simple way to accomplish this. Support and resistance lines can assist you in following the price action’s overall trend. It is easier to trade with the trend or price action than against it. As a result, it’s best to use these tools to confirm the price action.

AI tools could indicate where the price goes and with support and resistance lines you can validate this
AI tools could indicate where the price goes and with support and resistance lines you can validate this

Conclusion of Crypto Trading with Support and Resistance

Support and resistance can be found in all charting time periods; daily, weekly, monthly. Traders also find support and resistance in smaller time frames like oneminute and five-minute charts. But the longer the time period, the more significant the support or resistance. To identify support or resistance, you have to look back at the chart to find a significant pause in a price decline or rise. Then look forward to see whether a price halts and/or reverses as it approaches that level. As has been noted above, many experienced traders will pay attention to past support or resistance levels and place traders in anticipation of a future similar reaction at these levels.

Before you start trading try and test this type of strategy. Many cryptocurrency exchanges like Bybit, Bitget and so on offer demo accounts. You can also use TradingView and other tools to backtest such strategies.

Co-Author: Cryptoxyz

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