Support and resistance levels that workAfter reading this article you will understand why levels are formed, how to identify them on the chart and how to make trades in different market conditions. You will also understand where the price of BINANCE:BTCUSDT BTCUSDT is more likely to go and why.
What are support and resistance levels
Support and resistance levels are areas where big players take positions and then defend them. In these areas, the price can turn around and go in a different direction.
Support: An area where large buyers find the price attractive and begin to accumulate the asset.
Resistance: An area where large sellers find the price overvalued and begin to sell the asset.
Levels are not lines but zones, because large players cannot accumulate large positions at one price, they operate in a range. Zones of levels should be marked on the chart with a reserve for the areas where traders place stops (after their removal it is possible to return behind the level, i.e. a false breakdown).
There are cases when the price stops several times on one line, but these are not levels, but crowd traps.
Why support and resistance levels are important
1. Determining where to look for entry and exit.
2. Placing a stop loss behind the level in a protected zone.
3. Evaluating potential profits. For example, buying from support, you might place take profit in front of a resistance zone.
The market moves from support to resistance, from buyers' stops to sellers' stops, from overbought to oversold.
How to find levels on a chart
1. Price reversals
When the price reverses in a certain zone with increased volume, this zone becomes a potential support or resistance. Even if there is no volume in the zone, it is important to consider such reversals (there may be no volume if there is no reaction from the other side, no buyer-seller fight).
2. Dense accumulations (consolidations)
A long stay of the price in a range, especially if it is accompanied by increased volume, indicates the presence of a struggle in this zone between buyers and sellers. When the price moves out of this area, this area becomes support on the way up or resistance on the way down.
3. Mirror levels
These levels alternate between support and resistance. For example, a level that was previously a support can become a resistance after a breakout and vice versa.
4. High volume zones without price reversal
If there was high volume in the zone and the price went up or down quickly, you should expect a reaction when you approach the zone again.
5. Long volatile candlesticks with increased volume (gaps)
Such candlesticks can be a sign of activity from a large player. If after a long candlestick with high volume, the price returns to it, such a candlestick can become a level from which the price will react.
6. Levels on round price values
Round values such as 100, 150, 200 often become support or resistance levels. These are so-called psychological levels where traders and big players tend to place their orders.
Factors reinforcing the level:
1. Time frame. Strong levels are formed on the older timeframes day, 4 hours. Big players work on them and such levels are more reliable.
2. Volumes. The presence of high volumes in the zone of the level confirms its importance. If there are no volumes, the level may be less reliable.
3. Buyers and sellers fight. A strong level occurs when the price consolidates for a long time and then there is an exit with increasing volumes. This indicates that one side, buyers or sellers, has gained the upper hand.
4. Taking out stops. The formation of a strong level is often preceded by a false breakout, which knocks out the stops and increases its importance.
5. Psychology. Round values such as 100, 150, 200 are often strong levels due to their psychological influence on market participants.
How to trade with levels
1. Levels of older time frames are more important. Always start your analysis with the weekly and daily charts, then move to the hourly and minute timeframes.
Note : On illiquid assets, you should only use the senior timeframes day, 4 hours to determine levels, smaller timeframes often look chaotic.
2. The trend determines the priority.
In an uptrend, support areas will be important, resistance areas will be weak.
In a downtrend, support areas will be important resistance areas will be weak.
In a sideways trend, both zones are equally important.
3. When trading intraday , pay attention to more recently formed zones, they have more weight. For example, in the case of an impulsive trend, hourly levels may not have time to form, so 5M levels become important.
Note : The slope angle of the trend and the speed of the trend are very important in determining the levels, because the stronger the trend, the weaker the zones of the opposite direction.
4. In the case of impulsive trends , where the price moves quickly and virtually without pullbacks, you can use junior timeframes, such as 5 minutes, to find local support and resistance zones and enter a trade on the trend. This is important because hourly levels on such trends do not have time to form due to the high speed of price movement.
5. In a declining trend you can even trade against the trend (as in a sideways trend). The fact that the trend is fading can be determined by how the highs (in an uptrend) and lows (in a downtrend) are updated with great difficulty and small values. Divergences can also indicate that the trend is weakening.
Errors when working with levels
1. Blind trading from levels. Never enter a trade just because the price has approached a level. Always look for confirmation: price reaction, volume, etc.
2. Ignoring older timeframes. Levels on older timeframes always carry more weight.
3. Stick to a single point. Levels are zones, not specific prices.
4. Misidentifying the zone. Do not mark too narrow zones, remember that big players work in a range.
Selecting assets for trading
The selection of interesting assets should be based on the following criteria:
Presence of a strong trend.
The price is in correction and close to the level.
High liquidity of the asset.
Assets that are not suitable for trading at the moment:
Absence of a trend.
High volatility without structure (so called "saw").
Low liquidity.
Trading on unsuitable assets becomes a guessing game, choose assets consciously to tip the odds in your favor.
Final recommendations for working with levels
In an uptrend : Look for support zones to long. Resistance zones serve as targets. The stronger the trend, the less important resistance zones are.
In a downtrend : Look for resistance areas to short. Support areas become targets.
In a sideways trend : Trade support and resistance zones. Consider zone extensions and possible false breakouts.
Conclusion
It is important to realize that support and resistance levels are only a part of success.
The main points to consider are
1. Asset selection. Work only with liquid and trending assets where levels are most important.
2. Combine with other methods to find an entry point and confirm the strength of buyers and sellers such as volume, candlestick patterns and technical indicators.
3. Maintain positions : move stop losses, take partial profits and stick to your original plan.
Remember that trading is not only about finding levels and trades, but also about discipline, risk management and constant learning. Each element of your trading strategy is a cog that works in conjunction with the others. The more accurate and reliable the mechanism, the greater your chances of success.
If you found this article useful, place a rocket and write comments. Good luck in trading!
