Prices change depending on the relationship between supply and demand. If demand is greater than supply, i.e. the amount of demand for a product or service is higher than the amount of supply, the prices rise. In this case, people may be willing to pay more because there is more demand, so the prices rise. On the other hand, if supply is greater than demand, i.e. the quantity of the product or service available on the market is greater than the demand, the prices fall. In this case, sellers may have to compete and lower prices to attract consumers.

Cryptocurrency analysts typically use two key determinants when predicting a rise or fall in the price of a particular cryptocurrency. These are support and resistance lines. The basic concepts of technical analysis include support and resistance.

In a downtrend, prices are falling because supply is greater than demand. As prices fall, they become more attractive to investors who expect to buy assets such as stocks. It is because lower prices offer more favorable buying opportunities for investors. Falling prices can reach an equilibrium point with increasing demand over time. Demand gradually increases as prices fall, matching supply. At this point, the decline in prices may stop as demand and supply are balanced.

Support is a price level at which a downtrend pause is expected. Support is created by an increase in demand from investors or buyers who want to buy the asset at a lower price. The increase in demand manifests itself as support for the asset.

Support levels consist of strong buying pressure in the asset's price zone. However, it can also be related to a large wall of buying that can prevent the price from falling further or make the decline more difficult. Therefore, a support level needs to act as a floor and is usually caused by a large supply of buyers in a particular price zone. As a result, support levels can be expressed as points where the price can be broken by strong selling pressure.

Traders or chart analysts often draw support lines in relation to previous lows. This approach can signal a good buying opportunity when trying to anticipate possible price reversal points. Support levels are usually represented as straight horizontal lines, but can also be represented by diagonal lines. When a support level is broken, it usually tends to turn into a resistance level. In this case, the line no longer acts as a support but becomes a resistance level that prevents the price from rising. Therefore, a good trading opportunity usually occurs when resistance and support levels are broken.

Resistance occurs when demand is higher than supply. It is the opposite of support. Resistance consists of a level that an asset's price has not broken through, despite not experiencing strong selling pressure. It can also be associated with large walls of selling that prevent the asset's price from rising further

Therefore, resistance levels can often act as a ceiling that prevents prices from rising, often due to a large supply of sellers. They can also be interpreted by traders as a point that can be breached by significant buying pressure.

Often technical analysts draw resistance lines based on previous highs. This approach can help predict potential price reversal points. Resistance levels are usually represented by straight horizontal lines. When the resistance level is breached, it is important to pay attention because this often tends to turn into a support level. Resistance lines usually act as a ceiling that prevents the price from rising further, while support levels tend to act as a floor that stops the price from falling.

As a result, resistance levels are seen as points that stop the price from rising, while support levels are seen as points stopped the price from falling. Breaking or holding these levels can give clues about the future movement of the price and help identify trading opportunities.

Why Are Support and Resistance Levels Important?

Support and resistance levels are of great importance for technical analysis. Support and resistance levels show the points where the price has struggled or stopped in the past. These levels can provide clues about the future movement of the price and make price predictions. Support and resistance levels can provide guidance in trading decisions and can be used as potential entry and exit points.

Support and resistance levels can also help in determining stop-loss levels. If support and resistance levels are broken, this usually indicates that the current trend may change or accelerate. Stop-loss levels can be used to protect against these breaks and limit potential losses.

How to Find Support and Resistance Lines?

Here are some indicators used to find support and resistance lines:

• Trend line indicator
• Fibonacci numbers
• Peaks and valleys
• Moving average

Trend Line Indicator

Trend lines show the points where the price encounters resistance and the points where it finds support. In an ascending triangle formation, prices often meet resistance at high points and find support at low points. The trend line crosses through the high points, indicating the resistance level, while the other trend line crosses through the low points, indicating the support level. This formation may reflect a process in which the price gradually rises and approaches the resistance level.

Fibonacci Numbers

Fibonacci numbers refer to an advanced technique used to find support and resistance lines using the Fibonacci retracement tool.

Peaks and Valleys

The most important point of peaks and valleys is to analyze the highs and lows of an asset over a while. If the price of an asset hits similar highs and lows, this indicates strong market sentiment.

Moving Average

The moving average weighs the trend of the asset over the past time and generates average prices for a given time frame. Moving averages for different time frames, such as 10-day or 52-week, are used to find short-term and long-term support and resistance lines.

How Do Draw Support and Resistance Lines?

Drawing support and resistance line is an important action for traders and investors in cryptocurrencies.

Here are the steps to follow when drawing support and resistance lines:

• Finding suitable timelines
• Determination of price zones
• Drawing support and resistance lines

Finding Suitable Timelines

The most important thing to consider before starting to draw support and resistance levels is to clarify the targets. For a short-term trade, time frames of less than six months are used to analyze support and resistance. However, for a long-term trade, it is preferable to include at least 12 to 18 months of data points.

Determination of Price Zones

Once the timeframe is set, clusters of price increases and decreases are formed, showing high volume trading activity. In most cases, these zones are indicators of previous support and resistance levels. Identifying three or more price zones depending on the time frame provides a fair idea of how the asset is performing.

Drawing Support and Resistance Lines

The identified price zones are connected by a horizontal line. Resistance is the horizontal line for price zones in the ascending triangle formation. It will be the support for the price zones in the descending triangle formation.

Well-drawn or structured support and resistance lines are considered a symbol of competent trading strategy in the cryptocurrency market.

What Are the Best Support and Resistance Zones Indicators?

There are several automated and customized tools available on the market for people trading cryptocurrencies.

The factors that are considered to be the best indicators of support and resistance zones are:

• Fibonacci bollinger bands
• Pivot point
• Automatic fib

Fibonacci Bollinger Bands

The Fibonacci Bollinger bands indicator covers the Bollinger bands, which are three striped bands plotted for a fixed 20-day period and calculated using a volume-weighted moving average.

Pivot Point

Pivot point analysis considers three price points of an asset: the high, low, and close. When divided by three, a pivot point is formed. Upon calculation, it provides three levels of support and three levels of resistance, providing information about the range and sentiment of the market.

Automatic Fib

Auto fib plots fib levels between the highs and lows of a custom time frame for users.