The highest price level of an asset during a specific period.
A resistance in crypto is a level or zone in which the price of an asset stops appreciating because of increased supply from sellers that wish to sell at a certain price. Resistance levels in crypto can be of a short-term or long-term nature. This depends on many factors, such as the market sentiment toward the asset, the overall situation of the crypto and capital markets, and other factors.
Also Read: How to Use Stop Loss and Take Profit in Trading?
First, traders need to identify a resistance level. There are several methods for identifying them.
Traders can use previous highs and lows that the price set. For a resistance level, a previous high would be appropriate, such as the $19,000 all-time high for Bitcoin. They can also use a moving average indicator to find long-term and short-term resistance levels. A particularly popular indicator is the 200-day moving average, but there is no hard rule. It often depends on whether a trader trades a higher or a lower time frame. Another method would be a trendline, which can look similar to a price high but is drawn across several price points.
For example, some traders set their entry orders right at a certain resistance level. However, depending on the trading strategy, it may be more profitable to wait for confirmation that the price got rejected at this level before entering a short position or closing a long one. This kind of bounce on the confirmation of a resistance level can help traders set correct entries and stop-loss orders.
The alternative case is when the level breaks. If that happens, traders can choose to trade aggressively or conservatively. An aggressive trader will play a breakout if the price passes the resistance zone convincingly and set their entries shortly after the resistance, with a stop-loss slightly below it. That is, in case of a breakout past the resistance, traders look to enter a long position.
A conservative trader waits for a pullback to the previous level of resistance and waits for confirmation that this level has now turned from resistance into support. This kind of retest of a price level is common and gives traders the extra bit of confirmation that a price has broken a previous level. However, retests of previous levels do not happen all the time. That is why conservative traders sacrifice some spots where a price breaks through a previous level convincingly to get the extra bit of security that the resistance has now turned into support.
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