The highest price level of an asset during a specific period.
What Is Resistance In Crypto?
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.
How to Use Resistance Levels in Crypto?
Also Read: How to Use Stop Loss and Take Profit in Trading?
What Is the Difference Between Resistance Levels and Support Levels?
How to Trade Resistance Levels in Crypto
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.