In crypto trading, support and resistance levels are key technical analysis tools used to identify potential levels where the price of an asset may encounter buying or selling pressure.
A support level is a price level where buyers are expected to enter the market and provide enough demand to prevent the price of an asset from falling further. A support level is typically identified by a horizontal line drawn on a price chart at a level where the price has previously bounced off of and reversed upward.
A resistance level is a price level where sellers are expected to enter the market and provide enough supply to prevent the price of an asset from rising further. A resistance level is typically identified by a horizontal line drawn on a price chart at a level where the price has previously bounced off of and reversed downward.
Traders use support and resistance levels to help identify potential entry and exit points for trades. For example, if the price of an asset is approaching a support level, traders may consider buying the asset in anticipation of a bounce upward. Conversely, if the price of an asset is approaching a resistance level, traders may consider selling the asset in anticipation of a reversal downward.
It’s important to note that support and resistance levels are not always exact price points and can sometimes be imprecise. Traders should use other technical analysis tools and exercise appropriate risk management strategies when trading based on support and resistance levels.
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