From the desk of Louis Sykes @haumicharts
There’s a common adage around here, a bit of advice to “draw your lines with crayons, not pens and pencils.”
What it means is that when you’re drawing support and resistance levels, it’s best to construe them as zones rather than in terms of a single price.
It’s a good rubric and a sound principle. But it makes sense to explore in greater detail why this is the case, particularly for cryptocurrency.
When it comes to this new asset class, technicals are a far more popular choice among traders and investors. It only makes sense in a market where there aren’t nearly as many sophisticated fundamentals.
You’re not going to discount a crypto project’s cash flows to arrive at a valuation; you’re going to trade the chart.
But, amid the growing popularity of technical analysis, proponents often don’t recognize why price action principles work. There’s far more to understand beyond drawing rectangles on charts.
So, let’s explore what makes “supply and demand” work as a primary trading and analytical indicator, how to apply it, and why we argue for using crayons over pens and pencils when identifying these levels.