When it comes to technical analysis, support and resistance play a very important role in predicting the direction the market will go.
Support level is basically the ground floor in which the price of a particular cryptocurrency asset fails to fall below the support level during a downward price movement before the price bounce up and reverses to the upward direction.
Resistance level is basically the ceiling or roof in which the price of a particular cryptocurrency asset fails to rise above the resistance level during an upward price movement before the price bounce down and reverses to the downward direction.
Identifying support and resistance areas can help in determining trends in the market and also price reversals. One of the main benefits of the line chart is that is helps to simplify the chart to make it easier to identify support and resistance areas on the chart. This is done by only representing the closing prices.
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Support level identified on the ETH Line Chart
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Resistance level identified on the ETH Line Chart
When support and resistance level are identified, it can help traders and investors make the right decisions in the market. A support level identified can mean that the buyers are still in control of the market. This means that there is a possibility that the price would reverse upwards. Also, when there is a strong bearish trend, support levels can become resistance level when the price breaks below the support level. Traders can make use of support levels to know when to buy.
A resistance level identified can mean that the sellers are still in control of the market. This means that there is a possibility that the price would reverse downwards. Also, when there is a strong bullish trend, resistance level can become support level when the price breaks above the resistance level. Traders can make use of resistance levels to know when to sell.
