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What is Support and Resistance in Cryptocurrency Analysis?

Support and resistance are concepts used in technical analysis to express the lows and peaks of prices. They are also frequently used concepts in cryptocurrency price analysis. While it is estimated that the prices will not decrease further after the support point, there is an expectation that the prices will not increase further at the resistance points.


What is Support and Resistance?


Support and resistance points are points that occur naturally as a result of the behavior of investors in the market. Support and resistance points; can be followed in the short, medium or long term. Support and resistance points are determined as a result of detecting the movements of prices in the chart history. It is thought that the price cannot be exceeded after this level.


A support point refers to the point where prices are lowest on a chart. A falling price chart is not expected to continue falling after the support point. In other words, the support point prevents prices from falling. When the support point is reached, sales stop. Because it is not very desirable for investors to sell their cryptocurrency when the price is at its lowest point. To sell, investors wait for the price to rise.


It is possible to say that when the support point is broken, this point will turn into a new resistance point. Accordingly, prices continue to decline when the support point is broken. It is expected that the decline will continue on the chart until new support and resistance points are formed.


The resistance point can be thought of as the opposite of the support point. Resistance points are the point where bullish ends on a bullish chart. Resistance points act as a roof, preventing prices from rising. Once the resistance point is reached, prices are not expected to rise any further. At this point, purchases of the relevant cryptocurrency asset come to a standstill, as the price is assumed to have peaked. Investors wait for the price to drop to make a purchase decision.


When the resistance point is broken, this point turns into a new support point. After the resistance point is broken, prices are expected to rise above this point. Hence, it is assumed that purchases will increase.


How to Use Support and Resistance in Cryptocurrency Analysis


Support and resistance points can be found by interpreting the short, medium or long term graphics of the desired cryptocurrency asset. According to the historical course of a cryptocurrency chart, the bottom or top points of the prices can be determined. Identifying support and resistance points for Bitcoin or cryptocurrency investors can be seen as some of the helpful elements in deciding at which points to buy or sell.


Support and Resistance Types


Support and resistance points of different charts can be determined in various ways. There are some methods that can be useful for identifying support and resistance points. Moving average, Fibonacci and Trend support and resistance types are a few of these methods.


Moving Average Support and Resistance


The moving average method is an indicator for finding support and resistance points. The moving average indicator is calculated by averaging the prices over a certain period of time. Seeing the upward trend in the moving averages can be used to determine the resistance point, while the downward trend can be used to determine the support point.


Fibonacci Support and Resistance


The Fibonacci sequence is one of the mathematical concepts used in technical analysis. It is expected to reach the golden ratio in a chart using the Fibonacci sequence. The numbers that make up the Fibonacci sequence, namely 1-1-2-3-5-8-13-21-34, are divided into certain day intervals. The lines drawn between the floor and the ceiling are called Fibonacci arcs. If the price is approaching the Fibonacci arc from above, this point is interpreted as the support point. If the price is approaching the Fibonacci arc from the bottom up, this point is called the resistance point.


Trendline Support and Resistance


Trend lines are formed by drawing lines in parallel with the movement of rising or falling prices on a chart. The points where the trend lines meet are used to indicate the support resistance points. When two downward moving trend lines converge, a support point is expected to form. The confluence of two upward moving trend lines is interpreted as a resistance point.