Supports and Resistances

One of the most undervalued concept in trading is the notion of support/resistance. We have plenty of support/resistances, we can draw horizontal or diagonal lines (and patterns), we can use moving averages and so on. Nevertheless, many traders keep “ignoring them”.

Weekly BTC with 3 Moving Averages and some Resistances/Supports

The simple reason for that is because they keep trading/investing in the belief this support/resistance will break. Why? Because it’s well known that each support eventually will turn into a resistance and vice-versa. First of all, each individual is different. Some like to trade in counter trend and some will follow the trend. Knowing what type of investors/trader you’re is the first step to build a strategy based on that behaviour.

For instance in the following example (considering a mid/long term investor, more than 3 years) a counter trend investor may buy on “A” (also considering the long term trend as Bullish) and a trend investor will wait for a definitive trend and may buy on “B”. Both choices make sense if you have a proper risk management and if you keep aware of the market cycles. Cryptocurrencies are very volatile and speculative, if you don’t follow a strategy, diversifying and investing gradually, you will lose money for sure.

Trend Investing and Counter Trend Investing example

Conclusion & Recommendations

  • Never forget the big picture (weekly/monthly charts)
  • Invest/trade avoiding emotions
  • Follow a strategy
  • Keep in mind your risk managment
  • Keep learning