The resistance level is basically the price where a cryptocurrency is introduced to pressure while increasing. This happens because of the growing number of sellers who try to sell their holdings at that specific price. Depending on the situation, resistance levels may be short-lived or long-lasting. When they are short-lived, it often means that the overall market’s sentiment towards the cryptocurrency has changed because of an event occurring or some new information coming to light. Some traders even say that resistance is the opposite of support.
How to Identify Resistance Level?
There are numerous advanced ways to identify resistance. Yet, the simplest way to look at it is by looking at the line, which can be flat or slanted. On the other hand, the more advanced ways include looking at trendlines, bands, and moving averages (MAs).
Why is the Resistance Level Important?
To most traders, the resistance level is one of the most important concepts when it comes to technical analysis. Using this type of analysis, traders aim to predict how the price of a cryptocurrency will move by analyzing the past similar price movements of that cryptocurrency. However, traders who use technical analysis often use the resistance level and support level to correctly enter and exit the market in order to profit. Furthermore, resistance can even be used as a tool for risk management. Many traders set stop-loss orders in order to follow these resistance levels.
Also Read: What is the Support Zone?
Takeaways
- Resistance is referred to the pressure a cryptocurrency experiences while its price is going up.
- In order to use resistance levels to their advantage, traders check the trendlines, moving averages, and bands.
- Resistance levels are also used as risk management tools.