In the previous lessons, we’ve introduced trend lines, channels and support & resistance levels. This time, Let’s see how to apply support and resistance technical theory in real trading.
1. Buy at Support Level or Sell at Resistance level
For example, if you predict that $8,000 is the resistance and BTC will turn to downward movement from $8,000, you can short BTC at the price of $8,000 and profit from the downtrend.
Cons: In most cases, if the price break the resistance or support level, the market trend will reverse. That is to say, if you simply long or short BTC at the support or resistance, you will lose money once there is a breakthrough.
2. Enter the Trade after Bounce
A bounce means the price of the asset falls toward an important support trend line, then switch the direction to go up.
For instance, if $8,000 is the support, not to enter the trade at this support. When it reached $8,000 support and bounce back to $8,300 soon, you can open a long position at the price of $8,300.
Pros: You can make sure whether $8,000 is the strong support which is hard to be broken.
3. Trade at Break Spot
A break is when price pushes through the support and resistance. Suppose you’ve noticed that there is a break, what should do?
If you predict $8,000 is the support, you can open a short position right after it effectively broke the support.
Imagine that if $8,000 support is broken, what to do if traders opened long positions at the $8,000 support?
Undoubtedly, it led to loss with wrong market prediction. So, what should you do in trading?
In general, in order to reduce the loss, traders will immediately open short positions when the price slightly bounces back after breaking $8,000. Therefore, BTC price will rebound and retest the $8,000 support. At that time, you can choose to sell short BTC when it continues the downtrend.
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