Two of the most talked-about subjects in technical analysis are resistance and support as related to bitcoin trendlines. These two attributes act like barriers that prevent the price of a coin (or stock) from getting pushed too far in a certain direction – which moves around to develop upwards and downward trends. Traders use these levels to develop bitcoin trendlines that will help determine their trade entries and exits.
Resistance is the price at which selling pressure is high enough that it prevents the price from going any higher. The rising price often stalls and starts retreating, or correcting, back down as investors who bought when the price was much lower sell and take profits.
Support is just the opposite. As the price decreases to the level at which traders tend to buy, the demand increases and stops the price from falling any further. At this point, the price usually starts to move back upwards toward the resistance price.
Support and Resistance Strategies
Monitoring of the resistance and support levels can be done by using bitcoin trendlines and moving averages to get an idea of the best times to buy or sell. Some traders will also use tools like the Fibonacci to help them find possible resistance and support points. The more times the price touches these areas, the more solid these price levels become and the price will tend to stay within this area. There are many indicators and tools designed to help traders create their own strategies for success.
Breakouts And Fakeouts
Breakouts occur when the price moves beyond the resistance to the upside, or below support levels to the downside. When this happens, new resistance and support levels are made and trendlines get adjusted as needed. A fakeout is a term used to describe a trade that breaks resistance or support levels but winds up moving back within the prior trading range rather than continuing on the trend. Waiting for price confirmation is key to recognizing the difference between a true breakout or a fakeout.
There are many technical analysis tools to choose from to find resistance and support areas. Prices fall and test support levels as well as rise to test the resistance. Figuring out the future levels of support and resistance and learning to identify bitcoin trendlines can drastically improve your returns.