Philip Fletcher | Director & Co-Founder
Support and resistance levels are often talked about in the world of financial trading. They can underpin many key moves within an asset. Often, these levels reflect areas of confluence between other features of technical analysis like moving averages, Fibonacci levels, or key time frame led price targets. With that, there are different interpretations, and different results. Take a look at BTC/USD (Coinbase) and you can see where I consider to be key levels to get an idea of what I’m talking about.
Here are the levels I think are key on a large time frame. Here, each candlestick represents a 4 hour window, and this chart is looking back all the way to August.
Principally, when the price of an asset has an extended history, countless patterns emerge. It is fundamental to nature and to the market that whilst there may not be an absolute driving force, there is an underlying reason for everything. The market operates in this way, and becomes a creature of habit just like anything else. What you want to do, is be on the right side of a move. That’s all. Nothing more, nothing less. Try to solve the market and you will fail.
So my lines are drawn at:
$6006.96
$5359.95
$4057.74
$3344.64
Why? Well, look at the $6006.96. In the back end of 2018 and even before, the price tested this area multiple times, retracing over and over against. This is a characteristic of a clear zone of Support. Then, when the price finally broke that support, it did so with intensity. Now, I would expect that as the price appreciates, it will find the same level to be an area of importance. However, when the price is appreciating, and finds an area like this, it is referred to as resistance. So, I expect, based on the history of the price action, $6006.96 to be an area of resistance.
Similar reasoning is drawn across the other three areas on the chart, with all of them displaying their own versions of the same overarching idea.
Importantly, note how I say ‘areas’ or ‘zones’. Whilst the market can often have very specific price points at which resistance and support are found, when I look at this broader time frame, I am focused areas of importance, from which a much more bespoke strategy on a smaller time frame can assess the current and more recent price movements and see where a position can be opened in line with the strategies together.
Many people build entire strategies or even careers off of this approach, with the help of some market indicators. They are brilliant in their simplicity, however require incredible skill (like with all strategies). Typically, people would use an RSI, CCI cross, and MA & EMA (I tend to anyway). This combination can provide you with both the area of importance, and more in depth information on the current market conditions compared with other times. That gives you an idea of whether it is a good idea to sell into resistance, or buy into support. In other words: is the price going to bounce off this level, or just smash through it. Either one could crush your position, or you’ll hit your profit level and move forward.
At Pynk, we don’t use technical strategies in a vacuum. We use it as a method for risk management whilst of system drives our trading. Our Intelligent Crowd Engine coupled with our primitive friend Rose (AI), we’re testing some incredibly innovative strategies which attempt to limit downside without sacrificing any upside potential.
In the next piece, I’m going to look at Fibonacci retracements, and just generally how awesome Fibonacci is across the board.
Hope you found this interesting enough to come back, see you next time!
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Philip Fletcher