Using Support and Resistance levels in determining your entry and exit points in Cryptocurrency is a great technique no trader will want to ignore.
In this article, you will know;
- What Resistance and Support levels are
- Candlestick patterns vs Resistance and Support levels
- How to actually trade the Cryptocurrency Market using Resistance and Support levels
Without further ado, let’s dive into the topic.
In the Cryptocurrency Trading course, you have been introduced to what Support and Resistance levels are. But if you have forgotten, I will be introducing them again.
What is Resistance & Support levels all about?
The resistance level is also called the Supply Zone. It is defined as the point or zone where the price of a particular coin is rejected from going higher. It is at this zone or level that most traders in the market are targeting to sell their coin or even set the Limit Ask Order immediately they longed such coin.
A support level is also called the Demand zone. It is defined as the point or zone where the price of a particular coin is rejected from going lower. It is at this zone or level that most traders in the market are targeting to buy their coin or even set the Limit bid order.
NOTE: These zones are concentrated areas of liquidity.
Why are Resistance and Support Levels called the Supply and Demand Zones?
They are called so because (1) the supply zone is where the selling of the coin start happening in the market. And when supply starts, the market downtrend (bearish run begins). (2) Demand zone is the point where buying starts happening in the market. More demand leads to buying and more buying leads to an uptrend.
These zones are the points where Smart Money target the market. See a detailed article on supply and demand here.
Knowledge of the use of Resistance and Support level gives the pro traders edge over newbies in the market.
Professional traders (Smart Money) feed on traders that do not know what they are doing in the market. How? Because the levels are the point pro traders target to short or long the market.
Types of Resistance level
- Minor Resistance Level: It is the point the price was rejected once. This kind of level is not considered a strong resistance level.
- Major resistance level: The point the price is rejected more than twice. When this happens, it is considered a strong level or zone. So, the price is unlikely to break such a level anytime soon unless smart money traders happen or something happens fundamentally but before then, you’d have made enough profit for that trade.
Kinds of Resistance levels
- Horizontal resistance levels: Seen in the Ranging market
- Slanting resistance level: Seen in Uptrend and Downtrend.
In the market, we care more about the horizontal resistance levels
Types of Support level
- Minor support Level: It is the point the price was rejected once. This kind of level is not considered a strong support level.
- Major support level: The point the price is rejected more than twice. When this happens, it is considered a strong level or zone. So, the price is unlikely to break such a level anytime soon unless smart money traders happen or something happens fundamentally.
Kinds of Support levels
- Horizontal support levels: Seen in the Ranging market
- Slanting support level: Seen in Uptrend and Downtrend.
In the market, we care more about the horizontal support levels
How to choose Resistance and Support levels
The first thing you should know about support and resistance is that they are actually zones. You have to keep in mind that you’re not picking a precise point, but a zone where price may find support or resistance.
With that in mind, when you first start trying to spot good support and resistance levels, one
technique that can help you is to switch to line charts in your trading platform. This can help to reveal more significant levels to you.
Smart money traders go after areas of concentrated liquidity because they need traders taking the opposite of their position.
The main advantage that they (Smart Money) have over retail traders is that they use their ability to Buy and Sell large positions in the market to manipulate supply and demand. They can literally make the market move to their will.
Candlestick patterns at the support and resistance levels
Candlestick represents price movement in the market. Red candle suggests downtrend and green candles suggest uptrend. Candle patterns give you a hint on where the next candlestick will go i.e Bullish or Bearish. Log on to the cryptocurrency course to review the candlestick patterns lesson.
How important are candlestick patterns on resistance and support levels?
Always keep this at the back of your mind. Candlestick patterns that formed at the resistance and support levels are the strongest.
The bearish engulfing pattern that forms at the resistance level is stronger than one that does not form at the resistance level. So also, the Bullish engulfing pattern that forms at the support level is stronger than one that does not form at the support level.
So, with the sound knowledge of candlestick patterns, support and resistance level and top-down analysis, you can conveniently trade the cryptocurrency market.
I will be sending two books on Bullish and Bearish candle patterns to the group.
How to trade using the Support and Resistance levels
Do not forget, you sell at the resistance level and buy at the support level. Follow the steps below to know how to trade using support and resistance levels.
Step #1: Switch to the weekly chart and locate the past weeks’ support and resistance levels. In the coming article, I will reveal my personal Candlestick Halving Trading Trick. Take note of the major and minor resistance and support levels. Do this if you are either buying or selling. Buy at the support and sell at the resistance levels. The candle pattern coupled with MACD, RSI, MA(20) will reveal to you if the weekly trend is bullish or bearish.
If the weekly trend is bullish, it doesn’t mean the daily trend will be bullish all through. Expect some bearish trends also in the 1hourly chart.
Step #2: Switch to the daily chart and locate the resistance and support levels for the past days (usually 7 days). This time, the levels will be different from the ones you located in the weekly chart (because there are 7 days in a week). Check if there is a significant candle pattern on the support and resistance levels. If you are going to buy, check if there is a chance the market will break the support below and if the Bullish pattern is strong.
NOTE: New day starts at exactly 1am on Binance.
Take note of the kind of candle pattern forming before you jump into the market.
If you are going to sell, look out for resistance levels ahead (also the big ones you saw in the weekly chart). If the daily trend is bullish, it doesn’t mean the 1hourly trend will be bullish all through. Expect some bearish trends also. Because the price will be going up, coming down until it closes.
Step #3: Switch to 1hourly chart. When on this timeframe, you would already be aware of resistance and support levels ahead. By this time, you would have been done with the daily chart. Is the pattern on the daily chart bullish or bearish? What kind of candle pattern? Answer to these will give you the idea of how the 1hourly chart will be going and also determine your entry or exit prices.
ON DAILY CHART, If the candle pattern is bullish, MACD suggests an uptrend will soon begin, the candle is moving to close above the MA20, you are free to buy the coin on the 1hourly chart because it means on a daily chart, the trend is going to be bullish.
Now, switch to the 1hourly chart to buy on the support level. Don’t forget, there will be some highs and lows levels on the 1hr chart. But in a daily or weekly bullish trend, the 1hour chart will give high highs and high lows.
Meaning, the high and low level of the current price will be higher than the previous high and low levels.
Types of traders and time frame to use for resistance and Support levels
The types of traders we have are Scalpers, Swingers, Day, and Position traders.
- Scalp trader: If you are a scalper, 15mins, 30mins, 1hr timeframe will be cool for you.
- Swing trader: If you are in this category, 12hrs, daily and 3days timeframe will be cool for you
- Day trader: These people will do well on daily and weekly timeframes.
- Position traders: These people will also do well on the weekly and monthly timeframes.
Whichever kind you are, you must be sure to use the Top-Down Analysis + Resistance and Support levels.
What happens if the resistance or Support levels are broken?
When a resistance level is broken, it becomes a new Support level and aims to find or make another resistance level ahead.
If the Support level is broken, it becomes a new resistance level and aims to form a new Support level below.
To be on a safer side, before you enter or exit the market (after you might have gone through the weekly and daily chart to see if its Bullish or Bearish) 1hour or 30minutes chart, make sure the candle closes. Do you know why?
Because you may think the candle is bullish before it closes and end up as a bearish pattern by the time it closes. And from there, the bearish trend may continue.
Just so you know, some breakouts may be false alarm. So don’t be in hurry to sell. And to avoid selling in a hurry, make sure you are able to catch the trend immediately or before it began.
In the case of a daily or weekly charts, you may not be patient to wait that long. So in the next article, I will be revealing to you my personal Candlestick Halving Technique read here.
Videos explanation of Resistance and Support levels
Over to you,
Now that the use of Resistance and Support levels have been revealed to you, do yourself some good and open your chart right away to practice what you just knew.
Practicing this will greatly help you to become a better trader and crypto analyst.
If you encounter any confusion or would like to ask a question, kindly use the comment section below or drop your question in the group.
Have a Bullish day ahead.