Support & Resistance
Unless you are completely new to the crypto market you should know by now that the market does not move in a continuous straight line. It moves in more of a zigzag pattern creating peaks and troughs. These zig zag patterns create resistance and support levels. You can see in the screenshot below the difference between the resistance and support levels. Prices will bounce off these which will create new peaks and troughs.
What Creates The Support and Resistance Levels?
A support level is when the buying power is strong enough and prevents a decline in price. When the prices fall and hit a certain point this results in buyers entering the market. This drive the prices higher causing the market to lift.
The Resistance is when the selling power is strong enough to prevent the price from rising further. When the prices become more expensive this will driver more sellers to enter the market. The sellers are taking advantage of the high prices and taking profits. When this happens the prices eventually The logic behind this is that as prices become more expensive, more sellers enter the market to take advantage of these high prices and make a profit. Prices will fall until they reach a support level.
You will notice above how the roles have switched. You will notice at point A you have a support level then later and point D you now have a resistance level. Once that first support level gets broken a new one is created lower and that support line now becomes a resistance line. We never know if those levels will be broken permanently or if the market is just testing those levels.
If you look at the picture below you will notice that prices broke below the support level. It did seem like that the market was breaking the support but it was only testing that level. The more a support or resistance level is tested the stronger the that level becomes.
If you are looking for more issues on other things regarding to fundamental or technical analysis check out our other blog posts.