Whether you’re a beginner or an experienced trader on eToro, knowing when to enter and exit a trade is crucial. The exit and entry points are pivotal in executing trades and can either make or break any chances of gaining profits. In addition to entry and exit points, traders should also be aware of significant price levels or historical price levels of a market. These levels, along with the entry and exit points, can be identified easily by understanding the concept of support and resistance levels.
Key Takeaways
→The stock-to-flow ratio measures the scarcity of an asset by dividing its existing stock by its annual production (flow). |
→Originally used for pricing precious metals, the S2F model has been adapted for cryptocurrencies like Bitcoin. |
→The model suggests that the price of scarce digital assets like Bitcoin should increase in the long term. |
→Critics argue that the S2F model is overly simplistic and ignores other factors influencing asset prices. |
→The S2F model is just one of many tools available for predicting asset prices, and should be used with caution. |
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🤔 What are Support and Resistance Levels?
Table of content
- 🤔 What are Support and Resistance Levels?
- 🎢 Support and Resistance Levels as Trend Indicators
- 🔑 Importance of Support and Resistance Levels
- 📈 Practice Support and Resistance Levels with eToro’s Virtual Account
- Trading Technical Analysis: • Learn more📝
- Trading Basics:
- Candlestick Patterns:
- Contrarian Trading and Pattern Recognition:
- Trading Patterns and Strategies:
- Market Sentiment and Volatility:
- Technical Analysis:
- Trading Patterns:
- Trading Features & Strategies:
- Indicators & Analysis:
- Market Conditions & Trading:
- Disclaimer And General Risk Warning:
- Author & Expert Trader - Financial Analyst:
A support level is the base of an asset where the price is expected to stop falling, while a resistance level is the highest area of an asset where the price is expected to stop rising. In other words, support is the floor, and resistance is the ceiling – it is only within these levels that the price is expected to reach.
The support and resistance levels are horizontal lines connecting a common price point from a series of price movements. For the support level, it is located in the lower area of price action. It is established by drawing a line connecting common lower lows of price action.
In the example below from the asset – TSLA, the support level is created by drawing a horizontal line that connects the lower lows of price action. The red arrows show that the price did not break through or breach the horizontal line. The Support level is the level at which the price bounces back up – as represented by the red line in the image.
On the other hand, if the price keeps reaching a specific price level at the top, it becomes a resistance level. In this example, the price tried to break through the horizontal line but was not able to. As soon as the price touches or hits the resistance level, it pulled back down.
In this regard, breakouts happen when either the support or resistance level is breached. For this particular example, the support level has been breached or penetrated thus causing a breakout.
Support and resistance levels also serve as trend indicators that specify the trend of a market – whether it is bullish or bearish. This is done by drawing a line that connects the highs and lows of price action. If it creates an ascending line, the trend is bullish. On the other hand, if the line that has been created is descending, the trend is bearish.
The two images below provide examples of how the trend of a market is determined through resistance levels.
The first image from the asset – Zoom, shows a line that connects the highs of each price range. In every price range, the highs are decreasing thus creating lower highs in every range. Since the line drawn from connecting the lower highs is descending, the trend is considered bearish.
The second example below from the asset – BTC, shows a bullish trend by drawing a line that connects all the highs of a price range. The higher highs on every new price range immediately show that the market is on an uptrend.
Most of the time, support levels can also become resistance levels and vice-versa as the trend changes. This can be done by extending the line towards the current or future price range. In the example below, the red arrows indicate support levels from a downtrend market. As the support levels are extended to the right of the chart, these become levels of resistance. This event where the support level becomes the resistance level of the new price range usually happens at the end of a trend – such as an example which is the end of a downtrend.
🎢 Support and Resistance Levels as Trend Indicators
Support and resistance levels also serve as trend indicators that specify the trend of a market – whether it is bullish or bearish. This is done by drawing a line that connects the highs and lows of price action. If it creates an ascending line, the trend is bullish. On the other hand, if the line that has been created is descending, the trend is bearish.
🔑 Importance of Support and Resistance Levels
Support and resistance levels provide a good assessment of breakouts and serve as stop-loss and target prices. A stop-loss price is a price level where the trader closes their trade to avoid further losses from a bearish market. On the flip side, the target price is the price level where the trader sells their trade to lock in profits. Stop-loss price and target price can also be considered as safety measures when trading to avoid considerable losses and guarantee profits.
📈 Practice Support and Resistance Levels with eToro’s Virtual Account
Only by practicing how to establish support and resistance levels can one trader truly make the most out of these indicators. With an eToro virtual account, you can practice using support and resistance levels in real-time trading. Join now!
Trading Technical Analysis: • Learn more📝
Trading Basics:
Candlestick Patterns:
Contrarian Trading and Pattern Recognition:
Trading Patterns and Strategies:
Market Sentiment and Volatility:
Technical Analysis:
Trading Patterns:
- Bearish Engulfing Pattern
- Bullish Engulfing Candle Stick Pattern
- Morning Star and Evening Star
- Morning Star Pattern
- Railway Tracks Candlestick Pattern
- Shooting Star Candlestick Pattern
- How to Use Triangle Pattern
- How to Trade Three White Soldiers Candlestick Pattern
- Rainbow Pattern
- Understanding Flag Patterns
- How to Trade Bullish Engulfing Pattern
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