The support and resistance rule is an important trading strategy in technical analysis, focusing on using key points in historical price movements (such as previous highs and platforms) to judge trend changes and trading opportunities. Below is a detailed analysis combined with retail operations:
1. Core logic of support and resistance levels
1. Support level: Price may stop falling and rebound at this position (such as previous low points, areas of high transaction density).
2. Resistance level: Price may encounter resistance and fall back at this position (such as previous high points, trapped areas).
3. Conversion principle: When the price effectively breaks through the resistance level, that resistance may turn into a new support level; conversely, if it breaks below the support level, it may turn into a resistance level.
2. Analysis of specific operational rules: 1. Enter when breaking previous high (pressure turns to support)
Conditions: Price breaks through previous high points with increased volume (such as a breakout exceeding 3%).
Logic: A breakout indicates the bulls are dominant, and the trend may continue.
Retail operation:
Test with light positions on first breakthrough to avoid false breakouts.
Observe whether trading volume increases (volume-price correlation is more reliable).
2. Enter on pullback to previous high support (confirm effectiveness). Conditions: Price pulls back to previous high after a breakout and does not effectively break below. Logic: Pullback confirms support is valid; high probability of trend continuation.
Retail operation:
Add positions when volume decreases and stabilizes during pullback (such as a long lower shadow, bullish engulfing, and other patterns).
Set stop-loss 2%-3% below the previous high (to prevent false breakouts).
3. Exit when breaking the platform (trend reversal signal)
Conditions: Price breaks below the recent consolidation platform (such as box, triangle lower edge).
Logic: If the consolidation platform is broken, it may enter a downtrend.
Retail operation:
Immediately stop-loss or reduce position; do not hold any delusions.
If breaking below is accompanied by increased volume, the reversal risk is higher.
4. Take profit when breaking below previous high (protect profits)
Conditions: Price retreats from high and breaks below previous high support.
Logic: Support failure may indicate a trend reversal.
Retail operation:
At least close half to lock in profits.
If the rebound is weak (such as a small bullish line with reduced volume), clear out and exit.
3. Considerations for retail investors in practical operations
1. Strict discipline:
Plan in advance, clearly define entry, add position, stop-loss, and take-profit points.
Refuse to trade based on feel, avoid emotional interference (such as greed, fear).
2. Position management:
Single trade position should not exceed 10% of total funds.
Lightly position on first breakthrough, add more after confirming with a pullback.
3. Identify false breakouts:
False breakout characteristics: No volume at breakout, rapid decline, closing price does not stabilize above previous high.
Countermeasure: Wait for confirmation after a pullback before entering, reducing the risk of being trapped.
4. Combine with other indicators:
Moving averages: Running above the 20-day moving average is safer.
MACD/RSI: Divergence signals assist in judging trend strength.
Trading volume: Confirmation of breakout or breakdown requires increased volume.
4. Typical scenario case: Case 1: Effective breakout and pullback
Coin price breaks above previous high of 8.90 yuan with increased volume.
Retail operation: Buy lightly at 8.90 yuan, when the coin price pulls back to 8.90 yuan with reduced volume, add position.
Set stop-loss at 8.60 yuan, target price at 11 yuan (calculated based on previous rise).
Case 2: False breakout and stop-loss. The coin price briefly breaks the previous high of 14.10 yuan and quickly drops to 12.80 yuan, MACD dead cross.
Retail operation: Trigger stop-loss to exit, avoid deep entrapment.
Case 3: Take profit when breaking previous high
The price of the coin drops from 12.70 yuan back below the previous high of 11.77 yuan, rebounding to 11.77 yuan with no volume.
Retail operation: Clear out and exit to protect profits.
5. Pros and cons of the strategy
Advantages: Clear rules, suitable for trending markets, can capture major upward trends.
Disadvantages: Easy to trigger frequent stop-loss in a volatile market; must be used in conjunction with the market environment.
6. Summary: This method is the conversion of support and resistance levels. Note that breaking below previous highs for profit-taking is a test of the previous high during a decline. If a high position pulls back to the previous high and the rebound is weak, one can exit.
Retail investors should follow the support and resistance rules:
1. Patiently wait for key points, do not blindly chase up or down.
2. Strict risk control; stop-loss discipline takes precedence over everything.
3. Flexibly adjust, comprehensively judge in conjunction with the overall market environment and the fundamentals of individual stocks.
By systematically executing this strategy, retail investors can effectively improve their trading win rate and avoid losses caused by emotional trading.
Volume change rules
During the decline:
1: If there's no decline with increased volume, there must be a rise (reversal)
2: Increased volume on decline must be explosive (accelerated)
3: Continued decline with reduced volume (buying pressure weakens)
4: Wait longer if there's reduced volume without decline (selling pressure weakens)
5: If the closing line is a doji star, one can take profit on short positions (be cautious of market reversal)
6: After doji star, if it continues to fall, one can re-enter short.
During the rise:
1: If there's increased volume without rise, there must be a decline (reversal)
2: Increased volume on rise must be explosive (accelerated)
3: Continued rise with reduced volume (selling pressure weakens)
4: Wait longer if there's reduced volume without increase (buying pressure weakens)
5: If the closing line is a doji star for long positions, one can take profit (be cautious of market reversal)
Continue to buy after doji star if it goes up; one can re-enter.
Note:
1: The above rules must be observed in conjunction with trading volume and different time frame K-lines, and should not confuse the usage of time frame K-lines; the level of trade should match the level of K-line used.
2: Extreme market conditions are not applicable (for example, news-driven spikes/drops)
3: The above rules are the accumulation of my years of experience in trading cryptocurrencies.
The above is a summary of my more than ten years of practical experience and techniques in trading cryptocurrencies. It may not be applicable to everyone; each person needs to combine their own practice to use the summary. As a trader, the most frightening thing is not the technical issues, but rather insufficient understanding, falling into these trading traps without being aware! There is no invincible trading system, only those who use trading systems invincibly! This is the truth; the trading system ultimately must return to the individual!
After experiencing multiple bull and bear cycles, penetrate the fog of information to discover the real market.
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