Support and resistance trading is one of the most basic, yet highly effective trading strategies that can be used across all trading instruments.
Support and resistance simply show us where the market doesn't accept the price and the price then reverses.
Supports and resistances are then important psychological levels for sentiment and market participants, and as a result for future market moves as well.
Also, it doesn't matter if you trade Bitcoin, Ethereum or any other Crypto or even any other market. The same support and resistance techniques work on all markets and bring the same profitable results as well.
Defining supports and resistances
Do not complicate things and especially your trading. As veteran traders say: KISS, Keep It Simple Stupid. I personally define supports and resistances as follows:
Support is any price level where the market stops falling, makes a new low and starts moving higher. The more significant the low the better it tends to work. And it’s also recommended to always draw supports as zones, not as a single price level - this brings more trading opportunities and it also reflects the nature of how the market usually moves.
The most significant support zone on Bitcoin on this chart can be seen below. Supports and zones can also be drawn based on candle's wicks or based on their open/close price levels - depending on the situation and how the market behaves.
Simply the same as a support zone - only reversed. When the market stops moving higher and reverses back down, the resistance price level is created. Again, we draw resistances as price zones rather than a precise price level.
These were the horizontal support and resistance price levels, but we can also analyze and trade moving support and resistance price zones?
And do you know how the moving S/R zone is called?
I bet that you already know! Try it and you are surely right!
It's the trend line or better said - the trend zone.
Broken support becomes resistance and vice versa
And the last situation that offers good trading setups within this strategy are supports that are broken and become resistances or broken resistances that become supports.
The support and resistance trading strategy
Support and resistance trading strategies are really very simple and effective. A simple thing to do regularly is to draw the support and resistance zones on your charts and then when the market reaches them, wait for confirmation by Price Action.
For example, if there is a broken resistance that becomes support, the market hits the support and when you see bullish candles - Price Action - confirming the possible reversal, it’s a solid buy signal to go long.
In this trade example on the chart below, I place the Stop-Loss below the latest swing low.
And the Take-Profit can be placed based on following the Price Action, resistances or the trade can be exited by using trend lines.
Exactly the same, only vice versa is valid for SELL trades.
I wait for the market to hit a resistance zone and I enter when I see bearish Price Action into the SELL trade.
The Stop-Loss is placed above the recent swing high.
And I closed the trade below based on the blue trendline that you can see in the chart below.
But HEY, do you remember that I wrote that we can close trades based on supports and resistances as well? And do you remember where the broken resistance that became support from the previous trade was?
Take a look at the chart below and how accurately Bitcoin reached this zone (marked with the blue arrow) - it was a great support and resistance zone to close the trade in profit as well.
In the chart below, you can see the two green important support and resistance zones. If I would use these S/R zones instead of the trend line, I would close half of the trade on the first green support and resistance zone and the second half of the trade would be closed on the second green support and resistance zone (where the blue arrow is).
This is a great technique for closing profitable trades as well as it allows you to extract higher profits from the market. And also in the situation when the 1st S/R zone is reached, you should move the Stop-Loss of the second half to Break/Even and the second half then becomes a risk-free trade.
This is my simple, but very effective and profitable support and resistance trading strategy. If you would like to trade Crypto profitably, the best way how to achieve it is to learn simple price action patterns and strategies, and especially the support and resistance strategy.
The huge advantage is that once you master drawing and trading support and resistances, you can trade them on any market as they appear on all charts and instruments and this technique is 100% universal and adaptive to current market conditions and moves.
Take care and trade well!