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Understand how to Identify these trading zones on a chart so you can structure your Gunbot support resistance strategy for success.
Explore key concepts and fundamental techniques logic for setting up your support and resistance trading rules.
This article was published first at CryptoDROI.com
You can configure this strategy to buy and sell crypto automatically when they are at certain thresholds of a given distance from one another. You can set the parameters of support and resistance to suit your preferences.
For instance, you can configure the Gunbot support resistance strategy to place sell orders when an asset falls below a certain threshold and buy orders when it climbs above a point.
Undoubtedly, the concept of support and resistance has proven to be one of the most reliable trading strategies in the world of technical analysis.
Why? Because it lays the foundation upon which everything else is built.
Support and resistance work like invisible lines on a crypto chart; however, these lines are not all invisible to professionals.
Professional traders mark these lines on a crypto chart with extreme discipline and focus. The reason is, of course, that they understand that the direction of prices is determined at these predefined price slots.
The good news is that it won't take long to learn how to do this independently.
You may be wondering, "Why does this work?"
Again, the good news is that I'll give you the answer right away. The reason these concept works is attributed to the psychology of those who participate in the market. This simple concept largely determines the outcome of any trade.
Actions are predictable because people are predictable. People remember the past and have a propensity to behave in the future based on those memories.
Whether you want to admit it or not, most people follow the crowd and make illogical decisions regardless of the current facts. There is nothing more substantial than the behavior displayed in the crypto market every day.
The sentiment of traders justifies the concept of Support and Resistance. Optimism leads traders to justify buying, while fear leads traders to justify selling.
When you fully understand this simple ideology and commit to it, you will quickly realize that you have inherited the first step to market success.
Support acts as a floor for the price, often preventing it from falling further. Resistance acts as a cap that contains a cryptocurrency price from rising. Hence the name Support & Resistance!
Support & resistance will work the same as a roadmap. It will work as a reliable framework to show you where essential buying and selling times are out of balance. This in itself has a competitive advantage in the market!
Always remember that the movement of prices is driven by excessive supply and demand in a financial market. Demand equals buying pressure, while supply represents selling pressure.
What are Support and Resistance?
Support is the idea that some imaginary force supports the market. If the market is trading above an S/R area, that area is called support.
The reverse is true if the market is trading below an S/R zone; this zone is resistant. In general, there is no usable difference between the two.
In other words, support means there is enough buying pressure (volume) at a given price point to stop a downtrend, and resistance means there is enough selling pressure (volume) at a given price level to stop an uptrend.
SUPPORT PLACES A FLOOR BELOW THE MARKET, AND RESISTANCE SETS A HIGH ABOVE THE MARKET.
Support levels give the coin support and generally cause coins to rebound higher. Coin prices are supported off the horizontal line. This is a price at which buyers start to outperform sellers.
This support floor indicates that sellers are getting less enthusiastic about exiting and selling their coins.
A support level keeps prices high. Coin prices continue to fall to the support level and are expected to recover continuously. However, when coin price breaks above a significant support level, the prices are likely to drop, and investor fear increases.
Resistance levels are the exact opposite and tend to bounce coins lower. A resistance level represents the highest price you are willing to pay for an action. The sellers beat the bulls. Coin prices continuously rise to the overvalued resistance level and then fall again.
When the coin price goes through a significant resistance level, the price is likely to rise rapidly as investor greed sets in and becomes a reality.
The support and resistance barrier levels will change roles often. Once an action gains enough momentum to clear each level, that level's position is now reversed.
Support and resistance levels are validated on horizontal lines; they will often be found in round numbers. The longer prices stay on a significant horizontal line, the more this price area will be valid.
A support level is an area of the price that can stop a possible decline in the coin price, while a resistance level is an area that is an obstacle to a higher future price. Support and resistance levels are either horizontal or tilted lines.
How to use Support and Resistance
Support and resistance is a concept that the market will experience opposition to one degree or another in a given area. The market will tend to struggle in the S/R areas and will rebound often.
Pivot points are the first thing to know when looking for S/R areas. Pivot points are a significant change in direction. These are peaks or troughs in price action; peaks are high swings, and lows are low swings.
Just one candle up and one candle down is not a turning point, at least not in time.
Swings are generally characterized by sails stretching in one direction and then moving and going the other way. Recognizing pivot points is the first step in finding areas of S/R.
What are other steps to consider?
Drawing Support and Resistance Level
The best and most common way to visualize or draw these S/R levels is to look for oscillation points. Once you have found the swing points, you should aim to draw the line as close as possible to the candle bodies at the top or bottom of the swing.
There is a better idea to work here. Try not to cut the body of the candles. Also, they will lose market value or respect once these levels are passed, so keep your S/R lines up to date.
The strength of S/R levels
There are two essential means to look at the strength of an S/R zone. The first is to look at the size of the oscillation point that made the level. The second way is to find multiple swings at the same level.
Finding the breakout is one of the best ways to use S/R to trade. The breakout occurs when a candle crosses and closes on the other side of an S/R level.
Most traders use the concept of candle close as a confirmation or commitment that the market has broken out of a support or resistance level and then continues in the direction of the breakout.
Some people will trade the bounce, assuming the level will hold.
Identify Resistance
An example of resistance would be when the market has reached a significant high point (SHP). Contrary to the primary trend, the market corrects and establishes a series of swing highs (SH), eventually registering an important low point (SLP).
By looking at the trading chart, you can quickly identify the trend high (SHP) and low (SLP) and a series of high swings (SH) that fall between the two extreme points.
The selection of maximum swings is simple. There must be at least three bar heights.
Identify Support
An example of support would be that the market has hit a significant low point (SLP). The market is rallying against the primary trend and settling into a series of low swings (SL), eventually registering a significant high point (SHP).
It is easy to identify the trend high (SHP) and low (SLP) and a series of oscillating lows (SL) that fall between the two extreme points.
Selecting low swings is simple. There must be a minimum of three low bars.
Psychological Support and Resistance
Psychological support and resistance levels are critical static levels, and these are fine diving lines between bulls and bears. Psychological price levels influence the sentiment of traders.
When the price is above a psychological price level, the sentiment is bullish; however, as soon as the price goes below the psychological price level, the feeling turns bearish.
These are tricky trading areas because the bulls and bears respect each other.
When the price is above the psychological price level, the bears are reluctant to sell, and the bulls fully control the price, but as soon as the price drops below the psychological price level, the bulls do not interfere.
A psychological support level is also a price-dependent psychological resistance level. If the price is above the psychological level, it becomes a psychological support level, and when the price drops, it becomes a psychological resistance level.
In reality, the price rarely stops at a single price level, but it can drop below or above a level before turning around.
For best "negotiation" results, it is helpful to think of these levels as zones.
Instead of static and dynamic psychological levels, they will be fixed and active psychological areas.
High and low swings are the most common type of support and resistance.
When you see the market go up and then turn around and fall, you've just encountered resistance. It found support when the market hits a new low and then goes back up again.
Keep in mind that these ups and downs don't just happen. Whenever the market approaches these levels, some traders with a lot of money cause the price to change.
You want to trade with these strong traders, and that's why the ups and downs are so powerful.
Another Key: The more the price reaches these levels and turns around, the stronger those levels become.
Trend Line Support and Resistance
Trend lines are created by connecting the highs and lows of the swings as in the previous section, but the trend lines are not horizontal; they are drawn at an angle.
You have more than likely seen a market trend before. The trend in crypto markets tends to move through channels, and a line can often connect the top and bottom of the channel. This is how trend lines are formed.
As the price approaches the top or bottom of the channel, the trend lines will help the price to fall or resist its rise.
A TREND LINE IS A PRIMARY STARTING POINT FOR ANALYZING PRICE CHARTS.
As the market moves in any direction, not in a straight line but a zigzag fashion, the mutual location of these zigzags' upper and lower points allows a line to be drawn connecting significant highs (peaks) or significant lows (valleys) of an appropriate level using the technical tools of the TradinView.
To draw a trendline, only two points are needed, and the third is the confirmation of the contact point. On an uptrend chart, it should be plotted using lows, on a bearish chart using peaks.
The trading channel forms the trendline, a line almost parallel to it and is drawn on the opposite side (through peaks in an uptrend and valleys in a downtrend).
The two lines are then the edges of the channel. The higher and lower boundaries of a trading chart are referred to as support and resistance lines.
The peaks represent the price levels where the selling pressure exceeds the buying pressure. They are known as resistance levels.
On the other hand, the lows represent the levels at which selling pressure succumbs to buying pressure. These are called support levels.
In an uptrend, consecutive support and resistance levels must be broken, respectively. The reverse is true in a downtrend. Although minor exceptions are accepted, these failures should be seen as early signs of a trend reversal.
The importance of trends is a function of time and volume. The more prices bounce off the support and resistance levels, the more significant the direction becomes.
Trade volume is also substantial, especially at critical support and resistance levels.
Fibonacci Support and Resistance
Many traders use Fibonacci numbers to determine support and resistance; typically, people use retracements of 38.2%, 50%, and 61.8%.
It is commonly believed that a 38.2% retracement from a trend move will tend to imply a continuation of the trend.
The retracement of 61.8% suggests that a trend change could be brewing. Crypto traders have adopted many of these rules.
How to draw Fibonacci retracement levels in Tradingview with Gunbot
- In an up-trend, you want to identify the direction of the market. In this case, you want to be in an uptrend. Next, you want to attach the Fibonacci retracement tool on the bottom and drag it to the right, all the way to the top. Additionally, you want to monitor three potential levels of support: 0.236, 0.382, and 0.618.
- In a down-trend, you want to identify the direction of the market. In this case, you want to be in a downtrend. Next, you want to attach the Fibonacci retracement tool on the top and drag it to the right, all the way to the bottom. Additionally, you want to monitor three potential levels of support: 0.236, 0.382, and 0.618.
Moving Average Support and Resistance
As a trader, my method is determining support and resistance in the direction of the primary trend (which is always determined by prices above or below the 89-period long-term simple moving average).
Trading platforms like TradingView will allow you to create a simple 89-period movement medium. I encourage you to look at the market this way.
Moving averages are the way to smooth the market price to see market trends more quickly.
There are all kinds of moving averages: simple, exponential, smooth, weighted. Each has its purpose, and there are benefits to using each of them.
What is Confluence in Technical Analysis?
Confluence is a fundamental concept in trading as it is more of a technical indicator or factor that confirms a trading signal.
More than two technical factors could ensure each other and point to a high probability trade setup.
These technical factors can be support and resistance, trend lines, Fibonacci levels, bar patterns, candlestick patterns, moving averages, pivot points, etc.
Seeking confluence means looking for additional confirmation before making your trading decisions.
Confluence can provide you with high potential trading setups and is an integral part of support and resistance. If you've been trading for a while, you must have noticed that trading setups abound for one reason only.
You will often come across situations where there is only one basic reason to trade. It would be best to have patience as you practice confluence and seek additional reasons to confirm your trading decisions.
You will have to wait for the confluence to develop, as most of the time, it does not coincide.
Here are three examples of a confluence setup
- An uptrend support line confirming the rebound of a horizontal support line,
- A daily S1 pivot point that coincides with the rebound of the 38.2% Fibonacci level,
- A break above a pennant pattern which coincides with the resistance line
These are a few examples of where confluence provides you with additional confirmation on a business setup.
IF YOU ARE PATIENT ENOUGH TO FIND THE CONFLUENCE BEFORE STARTING A TRADE, THE CHANCES OF WINNING TRADES INCREASE.
As a technical trader, you need to develop your patience and avoid the habit of immediately going into a trade. Look for the confluence of at least one additional technical factor first before making your trading decisions.
Now that you have all the preliminary information about these critical trading levels let's get on and set up the Gunbot Support Resistance Strategy on the GUI.
Gunbot Support Resistance Strategy Settings
As its name suggests, the Gunbot support resistance strategy will buy at support levels and sell at resistance levels.
You can use this method to profit from small moves in the market because this strategy will take profits whenever the price reaches resistance or support.
Gunbot developers have created an easy way to work with the support/resistance strategy. You will only have to worry about one parameter to establish your point of entry. This parameter is SupRes_SPREAD.
When you add a numeric value to your SupRes_SPREAD parameter, it will designate that as a percentage of the price above the first support level when buying or below the first resistance level when you're selling.
Then, when the price crosses this limit, will place an order. After that, if you enabled your balance settings for multiple orders, the bot will set a buy order every time your buy conditions are "TRUE" in the market.
: The support and resistance levels are not fixed points. So, it would be best if you looked at the SupRes_SPREAD as a trailing range.
Therefore is crucial that you set a value that closely follows the current pair and price range because if you set the spread too big, it will signal Gunbot to start trading straight away.
Gunbot Support Resistance Calculation Formula
Gunbot uses a proprietary algorithm to determine support and resistance levels. But you don't have to worry about it, and when you input your desired settings, it will automatically select these values for you.
Still, here's Gunbot Support Resistance Method
P = (H + L + C) / 3
R1 = (P 2) – L
R2 = P + (H – L)
S1 = (P 2) – H
S2 = P – (H – L)
How to Create the Gunbot Support Resistance Strategy in the GUI
The first step you have to take in creating your Gunbot support resistance strategy is to click on the "Strategies" tab on the GUI to activate the "Create new trading strategy" option.
There, give it a "Nickname" and set the Buy and Sell methods by selecting the predefined "SupportResistance" parameters.
: These strategy settings apply to the Gunbot Support Resistance Strategy for SPOT Trading. Read this section if you need the steps for the SupRes strategy for Futures trading, provided you have our market maker bot unlocked.
Here's an example of how it will look in the Gunbot GUI:
The strategy will associate these parameters with all the pairs that use this process.
If you want a specific parameter value to differ for one or more pairs, you can define an override particular to the crypto pair you wish to trade differently.
Remember to set these values by editing your config.js file and mixing the buy or sell methods with other pre-made strategies.
Gunbot Support Resistance Buy Settings
These are the central values that will activate your Gunbot strategy entry points.
BUY_ENABLED ": Toggle to "ON" or set to TRUE in your config.js to enable the Gunbot support resistance strategy to start buying.
SupRes_SPREAD ": The value you'll add here will set the percentage "above" the first support level at which Gunbot will start buying.
SupRes_MAX ": The value you'll add here will dictate how many times you're allowing the strategy to buy. You will set the maximum position size in the base currency.
Gunbot Support Resistance Sell Settings
These are the central values that will activate your Gunbot strategy exit points.
SELL_ENABLED ": Toggle to "ON" or set to TRUE in your config.js to enable the Gunbot support resistance strategy to start selling.
: Here, you will add your desired gain, and Gunbot will sell once the price reaches your set percentage above the break-even point and your SupRes_SPREAD value is reached.
SupRes_SPREAD ": The value you'll add here will set the percentage "below" the first resistance level at which Gunbot will start selling.
Gunbot Support Resistance Balance Settings
Your balance settings are essential for trading with Gunbot. They define how much the bot can invest per trade and can be adjusted for different trading strategies.
Follow this link for an explanation on how to set your balance in Gunbot
Balance settings are the same for all strategies, so once you understand the main parameters, you can apply the same values to any Gunbot trading method.
Gunbot Support Resistance Indicators Settings
The two leading indicators used by the Gunbot support resistance strategy are the "Period" and the "SMA Period."
PERIOD ": Here, you will set the time frame you want to use for your strategy; all other indicators will use this same period. Remember always to use a time frame supported by your chosen exchange.
SMAPERIOD ": The value you'll add here will designate the number of candles your strategy will use to calculate the support and resistance levels.
Bear in mind that the Gunbot Support Resistance strategy is somewhat different and uses fewer options than usual with lesser configurable options. As a result, other confirming indicators or additional trailing are disabled in this strategy.
The Gunbot support resistance strategy won't use any other feature like Dollar-Cost Average (), Reversal Trading (RT), or Trail Me, so you don't have to worry about those settings.
Final Words
The concepts of support and resistance can indeed be complex for new investors. Still, it is possible to focus on the basics and at the same time get a good idea of how these two attributes work together to influence the prices actions.
Whether you are a day or swing trader, it is vital to master the support and resistance basics to maximize profits.
Don't forget that, with an automated crypto trading platform, you don't have to be actively involved in the trading process. The crypto bot will carry out the majority of your trading activities. The only thing you have to do is set your strategy values so the bot can work with it.
Gunbot is easy to use, even for those who have never participated in any form of crypto trading before. The bot has been around for years and has managed to build a strong track record and a loyal community that testifies for its profitable strategies.
If you don't have Gunbot yet, now is an excellent time to get it so that you can trade with precision and profit with the Gunbot Support Resistance Strategy.
