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Blockchain technologies have ushered in a new era of digital assets that keep growing in popularity. Cryptocurrencies are the new hot topic with enthusiasts and investors from all over the world partaking in owning and trading cryptos. In trading these digital assets, technical indicators come in handy and prove to be effective strategies for making profits. Such indicators include the resistance level. When applied and executed effectively, huge profits can be minted in the crypto realm. Moreover, newbies can leverage extensions like the Fibonacci that predict future resistance levels such as reaching 100% or 200% levels and then reacting. The resistance level is an essential indicator that sellers take advantage of and enter the market, and on various occasions, can change the price movement. As such, the resistance level is an indicator that points out where most sellers will enter the market.
What is the Resistance Level?
In crypto trading, the resistance level acts as the ceiling of the crypto market. It indicates that the price of a crypto asset is overvalued, as such, most traders exit their trades and take a profit. It's basically a concentration of sell pressure that forces price levels to act as a barrier. In simpler terms, the resistance level is achieved when crypto prices increase in value fostered by seller interests. As a result, a resistance zone is forged where the crypto price halts and begins reacting. Moreso, these resistance levels can be used as exit points and in some cases entry points. The cause of this is that when prices are at the resistance level, they either bounce back away from the resistance level or go against it. If the latter happens, another resistance level is formed, and the initial one becomes a support level. Considering technical analysis strategies secure large profits and most crypto trades leverage resistance levels in doing so. The common belief is that the price will not break past the resistance. In the likelihood that it does, pro traders can predict the trend direction and take advantage. One major advantage of this indicator is that traders can mitigate losses in the event of a break past the resistance level. Alternatively, huge profits can be made if applied correctly.
Benefits of using the Resistance Level
There are various benefits of using resistance levels in trading cryptocurrencies. As such, this indicator is a significant tool in making profits and mitigating losses, proving to be an exceptional trading instrument. However, it's important to note false breakouts. It implies to resistance levels becoming a support level once the price breaks past the resistance level. It's vital to identify optimal resistance levels even during minor breakouts, that in turn assists in putting short-sell orders correctly. Some of the benefits of using the resistance level include:
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Better Trading Strategy
Considering that the cryptocurrency market is among the most volatile, applying the resistance level technical indicator assists in predicting price surges. Newbies might suffer huge losses based on the market’s volatility. Once identified, the resistance level can assist in formulating an effective and profitable trading strategy. Traders can use these levels in generating a trading plan. Moreover, you can come up with strategies to counteract the volatile market and make huge gains.
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Predicting the Market Trend
When knowing the market trend, it is easier to understand the price movement and the resistance level makes this possible. It's a critical tool in crypto trading as it provides insights into the market trends at the time. As such, traders can use this to their advantage. It implies either using the levels to gain profits from the trend movements or mitigating losses. In simpler terms, it helps in knowing if it's safe to trade crypto.
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Displays Exit and Entry Points
Even without being a professional crypto trader, using the resistance levels predicts the entry points and exit points that you can use in securing profits. It implies knowing when to take profit or enter a trade. Using the resistance levels allows you to identify and take advantage of these exit and entry points. As such, they stem a trader's decision in entering the market by giving insight into the crypto asset’s price trends.
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Risk Management
A resistance level is an essential risk management tool. Leveraging the resistance level is an important risk management enhancement tool that allows the prediction of price movements across the market. For example, traders can initiate stop-buy orders above a resistance level. As such, in case of an upsurge rally where the prices break past the level, traders can control their losses.
Conclusion
Resistance levels provide traders with a more technical insight into the crypto market. Leveraging this indicator proves to be both lucrative and informative. As such, it helps identify false breakouts that might trigger huge losses. Most traders around the globe attest to the resistance level effectiveness in determining the prices of crypto assets.