To determine the strength of momentum and the level of support or resistance, it is important to consider several factors:
1. Strength of momentum
Momentum is the rate of change of price. It shows how fast the price is moving in a certain direction.
How to determine the strength of momentum?
• Candles: Long candle bodies without shadows (or with small shadows) indicate strong momentum.
• Volumes: High volumes when the price moves in one direction confirm the strength of momentum.
• Indicators:
• Bollinger Bands: If the price breaks out of the bands, it may signal strong momentum.
• KDJ: When the indicator lines diverge sharply and cross the levels of 20 or 80, it may indicate strong movement.
• RSI: Values above 70 or below 30 indicate strong momentum.
• MACD: Divergence between MACD and price can signal weakening momentum.
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2. Support and resistance levels
These are key price levels where the price previously turned around.
How to find them?
• Historical levels: Look at where the price often turned around in the past.
• Psychological levels: Round numbers (e.g., 50,000 in BTC) often act as levels.
• Fibonacci: Levels of 38.2%, 50%, and 61.8% often serve as support or resistance.
• Bollinger Bands: The middle line (SMA) and the boundaries of the bands can also act as levels.