$ADA Have you ever heard the phrase "the market is like a camel... it doesn't forget" - this phrase simply summarizes the essence of support and resistance levels... Did you know that professional traders base 70% of their decisions on these levels? They are invisible lines but as strong as steel walls in the trading world.
Jasim, a civil engineer, lost a significant investment because he bought cryptocurrency near a strong historical resistance level. "I saw the price rising strongly and thought it would continue. I didn't realize it had reached a psychological ceiling that the price had bounced off three times before." Today, Ahmed does not make any buying or selling decisions without first identifying support and resistance levels.
Support and resistance levels are price areas where the price direction stops or reverses due to a concentration of pre-existing buy and sell orders.
Simply:
- Support level: A price area from which the price tends to bounce upwards, like a floor off which the price rebounds. It forms when buyers believe the price has become attractive and start buying heavily.
- Resistance level: A price area that is difficult for the price to surpass, like a ceiling that the price hits. It forms when sellers believe the price has become high and start selling heavily.
It all simply depends on the mindset and psychology of investors... and how many people think in the same way and make the same decision without seeing each other or agreeing on it... So how are these levels formed? There are several factors:
- Collective memory: Traders remember levels where significant price changes occurred in the past. If the price falls sharply from a certain level, traders will hesitate to surpass that level again.
- Psychological levels: Round levels like $10,000 or $50,000 form strong psychological barriers.
