If you’re new to the world of cryptocurrency trading, you may be unfamiliar with the terms “support” and “resistance.” These concepts are crucial for understanding how the value of cryptocurrencies fluctuates over time. In this article, we will explore what these terms mean in the context of cryptocurrency trading and provide real-life examples to illustrate their significance.
What is support?
In the world of cryptocurrency trading, “support” refers to the price range at which a cryptocurrency has historically found a floor or bottom. This means that if the price of a particular cryptocurrency falls below its support level, it is likely to find buyers at this price point, preventing it from falling further.
For example, let’s consider the price of Bitcoin (BTC) over the past year. In July 2020, the price of BTC hit a low of $3,854. This represented the cryptocurrency’s support level for that time period. As long as the price of BTC remained above $3,854, it was likely to continue attracting buyers and maintain its value. However, in November 2020, the price of BTC surpassed its previous high of $19,550, reaching a new all-time high of $20,476. This represented a significant breakthrough for the cryptocurrency, and it continued to rise in value throughout the rest of the year.
What is resistance?
In the world of cryptocurrency trading, “resistance” refers to the price range at which a cryptocurrency has historically found an upper limit or ceiling. This means that if the price of a particular cryptocurrency rises above its resistance level, it is likely to find sellers at this price point, preventing it from rising further.
For example, let’s continue with the price of Bitcoin (BTC) over the past year. In July 2020, the price of BTC hit a high of $14,087, which represented its resistance level for that time period. As long as the price of BTC remained below $14,087, it was likely to continue attracting buyers and maintain its value. However, in November 2020, the price of BTC surpassed its previous high of $19,550, reaching a new all-time high of $20,476. This represented a significant breakthrough for the cryptocurrency, and it continued to rise in value throughout the rest of the year.
The role of support and resistance in cryptocurrency trading
Understanding the concepts of support and resistance is essential for successful cryptocurrency trading. By analyzing historical price data and identifying key levels at which a cryptocurrency has found either a floor or ceiling, traders can make informed decisions about when to buy or sell an asset.
In addition, support and resistance can be used to identify potential areas of volatility in the market. If a cryptocurrency’s price has been bouncing back and forth between two key levels for several weeks or months, this may indicate that the asset is experiencing high volatility. This can make it more difficult for traders to predict the direction of the market and may result in larger potential losses.
Real-life examples of support and resistance in action
Let’s take a look at some real-life examples of support and resistance in action:
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Bitcoin (BTC) in 2020: The price of BTC hit a low of $3,854 in July 2020. This represented the cryptocurrency’s support level for that time period. Throughout the year, the price of BTC bounced between this support level and its resistance level of $14,087. In December 2020, the price of BTC reached a new all-time high of $34,795, representing a significant breakthrough for the cryptocurrency.
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Ethereum (ETH) in 2020: The price of ETH hit a low of $108.95 in March 2020, which represented its support level for that time period. Throughout the year, the price of ETH bounced between this support level and its resistance level of $475. In December 2020, the price of ETH reached a new all-time high of $1,397.61, representing a significant breakthrough for the cryptocurrency.
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Dogecoin (DOGE) in 2021: The price of DOGE hit a low of $0.000185 in January 2021, which represented its support level for that time period. Throughout the year, the price of DOGE bounced between this support level and its resistance level of $0.