Your ability to use technical analysis in order to make good trading decisions and inevitably make money in any market is imperative and it's something you cannot do if you do not understand some parts of technical analysis or if you don't know how to use them correctly then that is likely a huge reason that you are currently either losing money as a trader or struggling to create profits over time so for that reason today we will learn how Technical analysis works.
Technical Analysis can help you to identify trends and can help you to plan your Entry and exit on any specific Coin.
There are so many tools and techniques that traders use to predict the market direction but in this article we will start from the basics and focus on Support and Resistance Analysis i will also Share some live examples so you can understand it more better.
What is support and resistance?
Support and resistance are two important concepts in technical analysis, a methodology commonly used in financial markets to predict future price movements. Understanding these concepts can provide valuable insights for traders and investors.
Support
Support refers to a price level where demand is expected to be strong enough to prevent the price from falling further. It acts as a floor, preventing prices from declining.
Technically, it is the price point at which the number of buyers in the market exceeds the number of sellers, leading to increased purchasing activity and a halt in the downward price movement.
Chart Example
You can see how each time price reached that area and bounced , this represents that this area is a support and buyers don’t want to let the price go below it.
Resistance
On the other hand, resistance is a price level where supply is expected to be strong enough to prevent the price from rising further. It acts as a ceiling, preventing prices from moving higher.
Resistance occurs when the number of sellers in the market exceeds the number of buyers, leading to increased selling pressure and a halt in the upward price movement.
Chart Example
In the above picture you can see how the price is getting rejected each time its
approaching the area of resistance.
Similar to support, traders and analysts identify resistance levels based on historical price patterns and previous highs. Most of the traders use these levels to take profits on their buys or open shorts depending on what they want to do.
How to draw Support Levels?
First i will show you a whiteboard picture how you can actually draw it and how it looks like and then we will see a live example on chart.
Before we start drawing it, remember that technical analysis doesn’t guarantee you that your analysis will always be right, you can be wrong and the probability of a failed TA will always be there.
Carefully read the above picture and notice i mentioned “You’re expecting it to be a support” that means you do not have any confirmation yet that this area will act as a support or not unless price gives you a bounce from that area as i marked it later.
Chart example
Here is the real time example from the chart how the support is developed.
Horizontal Resistance
Drawing resistance level will be the same as support level but it is the other way around
Same description as the support.
Remember that at least three touches of the level you use as support or resistance makes it a strong area.
Now Lets Apply Support and Resistance levels on a live chart
Here is the live chart of $BNB How price respected that $180 - $240 Support zone the whole time.
Here is the live example how $70k zone is reacting as resistance on $BTC
Important Message
Remember that if you want to take the full advantage of #TechnicalAnalysis make sure you’re trading where the trend is. Support and resistance works perfectly when the trend is bullish or bearish.
When the overall market trend is bullish your support levels will most likely work , when the market is bearish and you are trying to trade support levels it can fail your analysis because you’re taking a counter trend trade. Even though your analysis is right you can still lose money because that is how markets are designed.
Long Story short
Never short a resistance in Bull market
Never Buy a Support in Bear Market
Trend is your Best friend
So keep in mind to follow the trend first and then apply your analysis on it.
Technical Analysis is just a tool to find your entry and Exit levels once you take a trade setup then comes the Risk Management and it is one of the key essential of trading i would say it's more important than knowing the technical analysis. If you're good at drawing levels on charts but your risk management is bad you will always struggle trading.
In My next trading lesson we will learn Risk Management.
If you learned something from this Article, Do not forget to leave your feedback.
