Resistance (Line/Level)

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. 

In technical analysis, a resistance level is visualized by drawing a line along the highest highs in the considered time frame. The line can be flat or slanted. More sophisticated models of resistance lines in crypto incorporate moving averages, Bollinger bands, and other technical indicators. 

How to Use Resistance Levels in Crypto?

Resistance levels (and support levels) in crypto are some of the most important aspects of technical analysis. Traders look at resistance levels to identify profitable spots to buy or sell a crypto asset and manage risk. It can often be used to set a stop-loss or take-profit order at that level. 

Also Read: How to Use Stop Loss and Take Profit in Trading?

A resistance level can be used flexibly. For instance, it does not need to be linear. Instead, it can be the moving average of a coin. By studying different resistance levels, traders obtain insight into key levels for large amounts of liquidity to enter the market. On the flip side, if a resistance level is broken, that can indicate the start of a new trend and the reset of existing levels.

What Is the Difference Between Resistance Levels and Support Levels?

Resistance and support levels are mirrors of each other. A resistance level is the price ceiling of an asset. For instance, in the 2017 bull run, Bitcoin set an all-time high of around $19,000. For a long time, this level served as a resistance level that the price of Bitcoin could not break above. At the time of writing, this level serves as the support level for Bitcoin, where buyers provide support for the time to not drop below $19,000. This illustrates how a price range can turn from support to resistance or vice versa. 

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.

Next, traders identify profitable spots to enter a position. For example, resistance levels can allow traders to identify levels where they can enter a short position. Alternatively, they can also close an existing long position or take profits on a long. Much depends on whether the price breaks the resistance level or is rejected. 

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. 

Also Read: Breakout vs Fakeout (False Breakout) — Spot the Difference and Increase Accuracy
In either case, price levels are helpful indicators but do not define how a crypto asset trades. Besides technical indicators, traders also need to factor in fundamental changes to an asset. These can render previous price levels obsolete and cause resistance levels to reset. Furthermore, resistance levels are more an art than a science and can be interpreted in different ways by using different indicators.