Support is the lower limit of the price that traders in the capital market will find difficult to break within a certain period of time. Not only crypto, this concept applies also in other markets such as the stock market and derivatives market. Support is indicated by a horizontal or slightly sloping line at the bottom of the graph.
When the price is in a downtrend, additional technical analysis indicators such as moving averages can be used to accurately determine support. Even though it has approached the support line historically, analysis is needed so that we can gauge whether the price will rise or stagnate.
Support refers to a level that tends to hold the price of an asset, preventing it from going down. The occurrence of support levels is caused by a strong buying pressure at that price zone, but it may also be related to big buy walls that can make it harder for the price to drop further.
As such, a support level is expected to act as a “floor,” and it’s usually caused by a large supply of buyers in a certain price region. So we may consider support levels as points in which the price can only break down with strong selling pressure.
In general, traders and chartists draw support lines based on previous lows. This approach can come handy when trying to predict potential points of a price reversal, which may indicate a good opportunity to buy. Although they are mostly depicted as straight horizontal lines, support levels may also be represented by diagonals. However, diagonals are usually referred to as trend lines.
When a support level is broken, it tends to become a resistance level, which would then present an opposite effect. So instead of acting as a support, the line would now act as resistance, acting as a ceiling that is likely to prevent the price from rising further. Typically, good trading opportunities arise when resistance or support levels are broken.