This article provides detailed examples, hoping to help all of you beginners. Having foundational knowledge is essential to thrive in this field and take control.
Although the article is long, I hope you can understand. More knowledge means less loss.
Resistance levels refer to price levels that become difficult to break through after rising to a certain point due to increased selling or weakened bullish strength. Judging resistance levels is an important skill in trading, which can be combined using the following methods:
1. Technical Analysis
(1) Historical Highs
• Concept: After the price touches a certain high point multiple times, it retreats, forming a resistance level near that high point.
• Operation:
• Look for obvious high points in the candlestick chart from previous days, weeks, or months.
• Multiple touches without breaking a high are more reliable.
(2) Moving Averages
• Concept: Moving averages (like MA, EMA) can serve as dynamic resistance levels.
• Operation:
• When moving averages are sloping downwards, prices rebounding to near the moving averages may face resistance.
• Commonly used moving averages: MA(7), MA(25), MA(99).
(3) Fibonacci Retracement
• Concept: Fibonacci levels are a set of key levels calculated from high to low (or vice versa), commonly encountered resistance levels are 0.236, 0.382, 0.5, and 0.618.
• Operation:
• Draw Fibonacci retracement lines from obvious high and low points, observing at which level the price starts to retreat.
(4) Trend Lines
• Concept: Resistance lines can be drawn by connecting multiple high points.
• Operation:
• In a downtrend, connect two or more high points to form a descending trend line.
• Prices usually face resistance when approaching trend lines.
2. Volume Analysis
(1) High Volume Area
• Concept: In areas where prices stay for a long time and volume is high, resistance levels may form.
• Operation:
• Observe the upper edge of the horizontal oscillation range in the candlestick chart (high points touched multiple times).
• Areas with high volume represent intense battles between bulls and bears, and prices rebounding to that area may encounter resistance.
(2) Volume-Price Divergence
• Concept: The price rises to a certain level, but if volume does not significantly increase, it indicates insufficient bullish strength, which may form resistance.
• Operation:
• Pay attention to whether volume significantly increases when the price rises to a high point; if the volume is insufficient, resistance may be effective.
3. Psychological Price Level
• Concept: Round numbers (such as 0.50, 1.00) or significant psychological price levels (like previous highs) are often resistance levels.
• Reason: Traders are prone to psychological effects near round prices (such as taking profits or stop-loss orders).
• Operation:
• Mark key round number levels.
• Pay special attention to performance when the price approaches round number levels (e.g., sudden increase in volume or reversal candlestick patterns).
4. Candlestick Patterns
(1) Reversal Patterns
• Concept: When the price rises to a certain level, a clear reversal signal appears, indicating that the resistance level is effective.
• Common Patterns:
• Upper Shadow: A long upper shadow indicates bulls are being resisted.
• Double Top or Head and Shoulders Top: The price touches the same high point multiple times but does not break through.
• Bearish engulfing: After rising to a high point, the next bearish candle completely engulfs the previous bullish candle.
(2) Oscillation Range
• Concept: Price fluctuates within a certain range, and the upper edge of the range is often a resistance level.
• Operation:
• Mark the high points of the oscillation range and observe the price reaction when approaching that high point.
5. Comprehensive Methods: Multiple signals overlapping
Combine multiple judgment methods for higher reliability:
• Historical Highs + Moving Averages + Volume: When a historical high is close to a moving average, and volume shrinks near the high, the reliability of the resistance level increases.
• Fibonacci + Trend Lines: When important Fibonacci retracement levels coincide with a descending trend line, strong resistance is formed.
• Psychological Price Level + Candlestick Patterns: A long upper shadow or reversal pattern at a round number confirms resistance.
Case Analysis: Judging Resistance Levels
Assuming #DOGE the price is around 0.46 USDT, trying to judge the next resistance level.
1. Historical Highs: Look at previous high points, such as 0.469 or 0.47.
2. Moving Average Analysis: Observe MA(25) or MA(99); if MA(99) is near 0.465, this may be a dynamic resistance.
3. Fibonacci: Use Fibonacci tools from the recent high of 0.50 to the low of 0.42 to observe important levels.
4. Psychological Price Level: Focus on 0.47 (round number).
5. Volume: If the price approaches 0.469-0.47 and the volume shrinks, it may face resistance.
Precautions
1. Resistance levels are not fixed points:
• Resistance levels are usually an area rather than a specific price point (e.g., 0.465-0.47).
2. Dynamic Adjustment:
• Resistance levels will change with market trends (such as the movement of moving averages or trend lines).
3. Breakout Observation:
• If the price breaks through a resistance level and is accompanied by an increase in volume, resistance may turn into support.
By using multiple methods to judge resistance levels, combined with market sentiment and volume, a more accurate trading plan can be formulated.
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