$BTC How to correctly find and trade support and resistance?
In the cryptocurrency market, how to accurately judge the support and resistance levels of the market is something all new investors want to understand, as this is crucial for choosing entry points later! In light of this, this article will explain how to judge support and resistance levels. Once we clarify these levels, how should we proceed with our operations?
The selection of support and resistance levels may seem ordinary, but in reality, this issue is simple yet not simplistic, and it is worth every investor analyzing and contemplating! This article aims to solve two problems: first, how to judge the support and resistance levels; second, once we have clarified the support and resistance levels, how should we operate?
Before explaining these two questions, let's first analyze the purpose and significance of studying support and resistance levels.
1. The purpose and significance of analyzing support and resistance levels
In technical analysis, we focus on two aspects: one is trend; the other is the positions of support and resistance. In the trading process, we advocate trading with the trend. However, market conditions are not static and will always experience fluctuations and reversals. So, how should we operate at this time?
In fact, this is the significance of studying support and resistance levels. If, during market fluctuations, investors can accurately grasp the support and resistance levels, then they can smoothly enter and exit at the right points and thus make profits.
In simple terms, the function of support and resistance levels is like traffic lights; they can prompt us when to speed up, when to wait, and when to stop decisively.
Overall, analyzing support and resistance levels can help investors improve their risk-reward ratio, enhance the accuracy of entry and exit points, and help investors avoid arbitrary and blind trading, thereby reducing unnecessary losses.
2. Common methods for judging support and resistance levels
Generally speaking, in actual operations, the common analysis methods we see include the following three: moving averages, Bollinger Bands, and Fibonacci retracement levels. Next, we will review these three common methods one by one.
1. Moving averages are frequently used in judging support and resistance levels. Moving averages serve two main purposes: one is to indicate direction; the other is to provide support and resistance.
Common moving averages can be divided into simple moving averages (SMA) and exponential moving averages (EMA). As for which moving average is better, it depends on personal preference; there is currently no unified opinion. Friends who prefer SMA tend to favor integer moving averages like 5, 10, 20, 50, 150, and 200. Friends who prefer EMA often like moving average periods based on the Fibonacci sequence, such as 21, 34, 55, 89, 144, and 233. In fact, the nature and values of moving averages are not the most important; the key point is that the moving average fits one's personality.
It is worth noting that when using moving averages to analyze short-term support and resistance, one generally needs to adhere to the principle of smaller moving averages for larger periods and larger moving averages for smaller periods. For example, when looking at daily charts, one usually pays attention to the resistance of the 5-day, 10-day, and 20-day moving averages. If it's an hourly chart or a 15-minute chart, one generally looks at the 100 and 200-period moving averages.
In addition, the author of (Professional Speculation Principles) has a special fondness for the 200-period moving average, especially its excellent application on daily and 15-minute charts. Interested investors may also want to try this method.
2. Judging support and resistance levels through Bollinger Bands generally involves focusing on the upper band, middle band, and lower band.
Generally, when the Bollinger Bands are flat, the changes are minimal, and the support and resistance levels are relatively stable, making it the best period for high selling and low buying operations. However, investors should also note that when the Bollinger Bands are flat, we must set reasonable stop-loss points to prevent breakouts. Teacher Bojin's experience is that when using Bollinger Bands for judgment, it is best to choose larger periods, such as 55 periods or even 100 periods.
3. Fibonacci retracement levels are the most common and effective methods for finding support and resistance levels. Teacher Bojin suggests that everyone pay more attention to the use of this method, especially the important Fibonacci levels of 38.2%, 61.8%, and 50%.
3. Key points for operating with support and resistance levels
After determining the support and resistance levels, investors will focus on the next question: how should we operate? Should we enter the market or wait and see?
Before analyzing this issue, we must first clarify one point: resistance levels do not necessarily require short selling; similarly, support levels do not necessarily require long positions. This is because the overall market direction is also an important aspect of our judgment on operational direction. For example, if the market is clearly bullish, we can understand resistance levels as positions for reducing holdings or increasing positions after a breakout, and this position does not necessarily require short selling. I hope every investor keeps this in mind.
Having said so much, there are still a few reminders for all investors. Although support and resistance levels are part of trading, they do not constitute the entirety. Mature traders not only need to manage their positions reasonably but also strictly control risks and adhere to trading discipline. For beginners, it is even more important to understand the significance of trend lines, know to trade with the trend, and avoid the mindset of shorting at resistance and longing at support. I don't like to talk big without backing it up; my capabilities speak for themselves. I am an old friend, Duan Chenbei!
