Trading should be an easy process of buying low and selling high, but for many investors, the process is a lot like rocket science. One of the simplest and easiest strategies to understand that can help with this is to determine the level of support and resistance for an asset.

When traders can identify support and resistance levels, they can improve entry and exit times. Support and resistance levels are also useful in an uptrend, downtrend and range.

Let’s take the time to understand the basics.

What is support?
Support is formed at the level where buyers’ demand absorbs sellers’ offers and prevents further price drops. At this level, beef traders tend to buy because they think the price is attractive enough and may not go down further.

On the other hand, bears stop selling because they believe that the market has gone down enough and a recovery is possible. When both conditions arise, a support is formed.

EOS/USD daily chart. Source: TradingView
The chart above is a good example of strong support. Every time the price of EOS drops to $2.33, buyers appear and sales drop. This causes demand to exceed supply, which leads to a rebound.

While horizontal struts are more reliable, they are not the only way to make them. During an uptrend, the trend lines that support it run.

LTC/USDT daily chart. Source: TradingView
Litecoin (LTC) started its bullish rally in December 2020. After that, the price of the trend line jumped several times. This was because as the price approached the trend line, the bulls bought and believed that the LTC/USDT pair had reached attractive buying levels.

At the same time, traders who opposed the trend stopped selling, believing that they could be sold into the oversold territory in the short term. Both events that occurred at the same time led to the completion of the correction and the resumption of the trend.

What are the levels of resistance?
Resistance can be viewed as the opposite of support because it is the level at which supply exceeds demand and stops the upward movement.

Resistance is formed when buyers who bought at low levels start taking profits and the hardened bears start selling because they believe the rally has continued and is ready to take back the money. When supply exceeds demand, growth stops and reverses.

BTC/USDT daily chart. Source: TradingView
Support or resistance does not have to be at the same level. The above chart shows how the $10,500 to $11,000 range acted as a resistance area. Once the price reached this zone, the short-term traders took profits and the violent bears closed the BTC/USDT pair. Between August 2019 and July 2020, the pair weighed out of the resistance zone five times.

Like support, the resistance line or zone does not have to be horizontal.

ETH/USDT daily chart. Source: TradingView
During the economic downturn from May 6, 2018 to July 4, 2018, Ether (ETH) gathered to form a resistance line, also called the bearish line, but it swung from there. This is because traders with a bearish view used the rally to enter new short positions as they expected lower levels.

At the same time, the bulls, who had bought on sharp declines, closed their positions near the resistance line. Thus the line worked as a wall and the price deviated from it.

Determining support and resistance in the consolidation phases

EOS/USD daily chart. Source: TradingView
When support and resistance are well identified, as in the EOS/USD pair above, traders can buy a support retracement and wait for the price to rise near the resistance to close the position. The stop loss of the trade can be held just below the support area.

Several times, professional traders can try to get these stops by cutting the price below the zone support level. Thus, traders can buy their way up and wait for the price to close decisively below the support level before flooding their positions.

Source: CoinTelegraph

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