Support and resistance strategy is one of the basic methods in technical analysis for trading. This strategy is based on identifying levels at which the price is expected to stop rising (resistance level) or falling (support level). Here is how to use it:
1. Identify support and resistance levels:
Support Level: A price level that tends to prevent the currency from falling further. It represents an area of interest for buyers.
Resistance Level: A price level that tends to prevent the currency from rising further. It represents an area of interest for sellers.
These levels can be determined by:
Historical charts: Look for areas where price has repeatedly stopped in the past.
Technical analysis tools: such as trend lines, moving averages, or indicators like the Fibonacci indicator.
2. Monitor price action:
When the price reaches a support or resistance level, watch the market reaction.
Level Test: If the price tests a support/resistance level and does not break it, it may be a good opportunity to buy (at support) or sell (at resistance).
Breakout: If the price breaks through a support or resistance level, it may indicate a change in trend.
3. Trade Execution:
Buy at support: If the price is at a strong support level and shows no signs of breaking down.
Sell at resistance: If the price is at a strong resistance level and shows no signs of breaking out.
Use Stop-Loss orders to reduce risk if the price moves against your expectations.
4. Use of auxiliary indicators:
Relative Strength Index (RSI): To determine if the market is overbought or oversold.
MACD Indicator: To determine trend momentum.
5. Beware of false fracture:
Sometimes the price may break through a support or resistance level and then quickly come back. This is called a “false breakout,” and it can cause losses if not carefully planned.
Make sure there is strong momentum or confirmation signals before making trading decisions.
6. Risk Management:
Do not risk more than 1-2% of your capital on a single trade.
Set clear Take-Profit targets as well as Stop-Loss.
7. Continuous training and learning:
Use a demo trading account to apply this strategy before using it in a real account.
Keep up with news and developments in the cryptocurrency market as they affect price movements.
Important Notes:
The cryptocurrency market is highly volatile. Risk management tools should always be used.
Support and resistance strategy alone may not be enough. It is better to combine it with other strategies and indicators to get better results.
