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Crypto enthusiasts can take advantage of several technical indicators in the crypto realm and make a significant profit. One indicator that has proven worthwhile is the resistance level, which can result in huge profits for crypto traders when tweaked correctly. Interestingly, newbie traders can utilize the Fibonacci extensions, which can forecast potential resistance levels. It can predict a resistance level will advance and reach the 161.8% or 261.8% Fibonacci resistance levels and then retract.
The resistance level is a key price level in which sellers have entered the market on several occasions in enough quantity to halt or reverse the price movement. Crypto traders utilize resistance levels to identify where sellers are most likely to enter the market. You can identify resistance levels of a cryptocurrency with horizontal lines where the price will rise and come to a halt at the same level several times. First, we have to know briefly about a resistance level and how to make a profit. Then some of the benefits of using resistance levels of trading and the risks involved too.
What is a Resistance level?
A resistance level is obtained when the prices of cryptocurrency increase due to seller interest. This creates a resistance zone where the prices halt and start retracting. Determining a resistance zone is crucial since you can use it as a potential entry or exit point. That’s because when prices reach the point of resistance, they will bounce back away from the resistance level. Alternatively, they will go against the resistance level. It also continues in its direction, where it forms another resistance level.
Crypto traders take advantage of technical analysis methods like the resistance levels to gain huge profits because they believe that the price will not break past that level. Even if it breaks through, experienced traders are ready to predict the direction and quickly determine if they are correct. Nonetheless, if the price goes past the resistance level, worry not because you can still mitigate losses by closing the position at a small loss.
Why Does This Happen?
When cryptocurrency prices tend to trend upside and form resistance levels, the prices begin to slow and move back downwards. At this point, sellers enter the market for profit-taking opportunities. You have to stay keen for incidences where the price of a cryptocurrency begins to fall away from the resistance level. That’s because history repeats itself. If the resistance level has historically been an area that has prevented the price of the asset from moving upwards, take advantage of it. That area that has pushed the prices downward in the past means that it’s the point where traders encounter selling pressure. As such, it would be best if you considered entering a short position to gain good profits.
The strength of a resistance level gets stronger the more times it gets successfully tested. Also, it depends on the interval length between market attempts to break above resistance. It would be best to position your buy limit orders below resistance with the prediction that the market will eventually break resistance. On the other hand, you can set buy-stop orders just above the resistance level, if the market gains momentum upward and breaks above resistance. Both approaches can ultimately aid you in garnering substantial profits using resistance levels.
Benefits of Utilizing Resistance Level to Gain Profits
Identifying a potential resistance level on your cryptocurrency can aid you in formulating a better trading strategy to get significant profits. The high volatility experienced in cryptocurrencies makes trading cryptos a daunting practice, especially for newbie traders. Trading without a strategic approach is like knocking on a losing door because you will incur major losses. That’s why making good use of the resistance level can allow you to create a trading plan. Also, you will have a strategy to counter-react to the market volatility and gain substantial profits.
A resistance level can depict a market trend that can pose a critical tool when trading cryptocurrencies. Also, it may provide insights into the ongoing market trends. Then, you can utilize this data and trade your cryptocurrency to make a good profit.
Even without the tech-savvy knowledge required in crypto trading, the resistance levels can easily display potential entry and exit points when trading your cryptocurrency. It can aid you in determining critical entry and exit points for your trade, which boosts positive morale when initiating a trade. Therefore, a resistance level can help you identify an opportunity in the market to give you significant profits.
You can utilize a resistance level as a risk management tool for your trade. A trader with a long position can open a stop-buy order just above the resistance level. Doing so saves the trader losses in case of an upward rally past the resistance level.
What to Look Out for with Resistance Levels
Technical indicators like the resistance levels seem lucrative for trading. Regardless, you have to be keen and look for indicators that can alter your resistance level strategy. In worst cases, if you don’t note these outcomes, it can lead to huge losses.
For example, an incidence when the crypto prices go slightly above the resistance level is known as false breakouts. The crypto prices in false breakouts can retract back to the resistance level or continue going upwards. In this case, your previous resistance level becomes your new support level which can create some confusion.
A support level occurs when there is sufficient demand for buyers in the market that outweighs the sellers. It thus prevents prices from moving downwards. If a new support level forms, you can wait for the prices to start dropping so that you can form your new resistance level. However, it may be difficult for novice traders to determine resistance levels due to instances of minor false breakouts. Therefore, identifying the optimal resistance level is essential to put a short-sell correctly. This way, you can ultimately avoid triggering substantial losses.
It’s important to note that the resistance level is deemed efficient the more times the price has historically been unable to move beyond it. Many crypto enthusiasts make good use of resistance levels for identifying potential entry and exit points. Those areas often depict the prices that are the most influential to an asset’s direction.
If you are looking to profit from trading cryptocurrencies, then leveraging the resistance levels is the best indicator to accompany you through your trading journey. However, efficiently executing resistance levels can be a complex process, so you require doing intensive research before beginning trading your cryptocurrency. It also takes a lot of practice to trade-off resistance levels. Once you are confident enough after trading using a demo account, you can consider trading real money.