What is Support & How Does it Work?

Support or, the support zone, can be seen as “buying pressure” at a specific location and time on the chart. This often causes the supply in the zone to decrease, and the relative demand to increase, causing a corresponding price increase (basic shortage rules mean that investors will be willing to purchase the cryptocurrency for a higher price to satisfy their demand). This will become clear in the following illustration:

During the infamous ‘it can’t go any lower than 52k’ dump back in November 2021, support seemed strong as the price was not dropping below the horizontal line at around 56.5k. Although it eventually did, this implied that more people were buying at that specific price level.

Support can sometimes be seen as a psychological barrier which traders and hodlers adhere to. Even if it can be as trivial as a round number it can also be a price based on valuations, e.g. market cap, or even on other technical indicators that signal a buy order such as EMAs and Fibonacci levels.

On support, investors and traders often believe the price has held a certain structure as it “bounces” (a word used when the price spontaneously reverts from the direction it was initially heading in). Conversely, sellers stop selling around that price level since they think they could potentially sell at a higher price. As such, the market begins to balance itself out.

What is Resistance & How Can You Trade it?

A resistance zone is the opposite of a support zone. In the example below, when BTC/USD started its correction at the end of last year, the price attempted to break an upper ‘resisting’ barrier multiple times (a). Although it ultimately broke through (b), this was dependent on the amount of buying volume and whether it would surpass the selling volume. 

Upon breaking this point, resistance can change or be ‘flipped’ to support, as can be seen in point c. This can also happen the other way around, when support changes into resistance.

If selling pressure begins to take over (see point d) the price can ‘lose’ support. At this point in the chart, there is a lot of selling pressure which is often caused by an influx of supply that exceeds the demand. As a result, market structure is temporarily lost and price will begin to fall down until it can find a level of support again.