How to Approach the Market by Levels
In this educational post, I'll be demonstrating how you can approach the market with simple technical analysis techniques, and logic based on simple probabilities.
This is not financial advice. This is for educational purposes only.
Identifying Support and Resistance
- The first thing you want to do, when you begin with a clean chart with nothing on it, is identify support and resistance levels.
- There are a plethora of ways to do this - you can do it using technical indicators, heat maps, order books, etc
- The more I chart, the more I find it convenient and accurate to identify support and resistance zones based on past price action.
- Thus, for this example, in lieu of using complicated indicators or moving averages, I've decided to simply identify key levels of support and resistance.
- Let's begin with the lowest point of support at 40.7k
- This is a level that has been tested countless times, both as support and resistance, during this entire trading range of $30-60k since last year.
- As we are currently trading above this level, this key region plays the role of support.
- If bears manage to push us down below this level, it would provide confirmation that further downside is highly probable.
- Next, we have the red line marking resistance at 45k levels.
- We have tested this region twice already this year, and failed to break and close above it.
- Thus, this level represents local resistance that we need to break and close above, in order to continue on with the bullish reversal.
- We're then faced with the resistance at 47.2k, which is Bitcoin's opening price for the 2022 yearly candle.
- The opening and closing prices of candles on the weekly, monthly, and yearly candles can play an important role as support or resistance.
- Taking this into account, if we were to break above 45k and close above those regions, it would be very likely for us to continue upwards and test 47.2k
- Then we have 53.7k, a key level of support-turned-resistance.
- We can see how important this level is, as the price dumped down to
42K immediately last year, when support at 53k broke.
- Thus, this is a key level of resistance that must be taken out before we can rally towards the 60k ranges.
Logical Approach Using Probabilities
- It's important to understand that predicting the market's future price action is impossible
- And timing the market, while possible, is extremely difficult.
- Thus, the best approach retail investors can take in understanding the market is one based on probabilities.
- "If X, then Y" is all you need to know.
- So for instance, applying this logic on the chart above, we would see something like this:
- "If Bitcoin breaks down below 40.7k, then we could expect further downside to new lower lows."
- "If Bitcoin breaks and closes above 45k, then we could expect it to test the yearly open resistance at 47.2k."
Conclusion
This market is difficult for old and new investors and traders alike. There are a lot of external factors combined - rate hikes, regional conflict, etc - that the market hasn't experienced yet. Bitcoin's price action is not extremely predictable at these levels, hence the best measured approach to take in understanding the market is to take it by levels. Identify key regions and levels of support and resistance, and look for confirmation and invalidation. In my personal opinion, I think that the bottom is either in, or that we're very close to the bottom. But until there's clear confirmation that we're out of the woods, I remain cautiously bullish.
This is not financial advice. This is for educational purposes only.
Identifying Support and Resistance
- The first thing you want to do, when you begin with a clean chart with nothing on it, is identify support and resistance levels.
- There are a plethora of ways to do this - you can do it using technical indicators, heat maps, order books, etc
- The more I chart, the more I find it convenient and accurate to identify support and resistance zones based on past price action.
- Thus, for this example, in lieu of using complicated indicators or moving averages, I've decided to simply identify key levels of support and resistance.
- Let's begin with the lowest point of support at 40.7k
- This is a level that has been tested countless times, both as support and resistance, during this entire trading range of $30-60k since last year.
- As we are currently trading above this level, this key region plays the role of support.
- If bears manage to push us down below this level, it would provide confirmation that further downside is highly probable.
- Next, we have the red line marking resistance at 45k levels.
- We have tested this region twice already this year, and failed to break and close above it.
- Thus, this level represents local resistance that we need to break and close above, in order to continue on with the bullish reversal.
- We're then faced with the resistance at 47.2k, which is Bitcoin's opening price for the 2022 yearly candle.
- The opening and closing prices of candles on the weekly, monthly, and yearly candles can play an important role as support or resistance.
- Taking this into account, if we were to break above 45k and close above those regions, it would be very likely for us to continue upwards and test 47.2k
- Then we have 53.7k, a key level of support-turned-resistance.
- We can see how important this level is, as the price dumped down to
42K immediately last year, when support at 53k broke.- Thus, this is a key level of resistance that must be taken out before we can rally towards the 60k ranges.
Logical Approach Using Probabilities
- It's important to understand that predicting the market's future price action is impossible
- And timing the market, while possible, is extremely difficult.
- Thus, the best approach retail investors can take in understanding the market is one based on probabilities.
- "If X, then Y" is all you need to know.
- So for instance, applying this logic on the chart above, we would see something like this:
- "If Bitcoin breaks down below 40.7k, then we could expect further downside to new lower lows."
- "If Bitcoin breaks and closes above 45k, then we could expect it to test the yearly open resistance at 47.2k."
Conclusion
This market is difficult for old and new investors and traders alike. There are a lot of external factors combined - rate hikes, regional conflict, etc - that the market hasn't experienced yet. Bitcoin's price action is not extremely predictable at these levels, hence the best measured approach to take in understanding the market is to take it by levels. Identify key regions and levels of support and resistance, and look for confirmation and invalidation. In my personal opinion, I think that the bottom is either in, or that we're very close to the bottom. But until there's clear confirmation that we're out of the woods, I remain cautiously bullish.
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