BlockBeats news, on December 24, according to CoinDesk reports, renowned crypto analyst Omkar Godbolev published an analysis article stating that SOL's price chart shows a 'bullish return' pattern. According to technical analysis theory, this pattern is seen as a low-risk opportunity for trend breakout traders. The price of SOL surged over 7% this week to $193, rebounding from a former resistance level turned support as determined by the trendline connecting the highs of March and July. This line, along with the line connecting the lows of April and August, defines a large descending channel that includes long-term fluctuations from March to October. SOL's price broke out of this channel in early November, confirming a bullish tendency. SOL quickly climbed above $260, then pulled back to the breakout point last week, which technical analysts referred to as a bullish 'return pattern.'
Technical analysis masters Charles D. Kirkpatrick II and Julie R. Dahlquist stated in their book (Technical Analysis: The Complete Resource for Financial Market Technicians): "When the price breaks upward and then 'pulls back' to its breakout level, a correction occurs. A pullback is an excellent level to participate in an uptrend. Their timing and distance are often short, but they typically provide a second opportunity for breakout traders to enter with less risk." Breakout traders look for assets that struggle to surpass specific levels. When the price finally breaks out, these traders enter the market, expecting significant fluctuations in the direction of the breakout. Trading breakouts requires constant monitoring of the market and careful assessment of price and volume trends. Traders who miss the initial breakout often hope to enter during a successful pullback, like SOL. These entry points are often considered lower risk because potential exit points or stop losses can be set just below the breakout point.
Prospect theory suggests that people typically avoid risk when it comes to realizing gains. In other words, when potential profits arise, traders often take those gains off the table instead of letting winning trades continue. This tendency explains why the first rebound after a breakout does not last long, and prices often pull back to the breakout point. This occurs because traders who entered with the breakout quickly take profits during the subsequent rise. Traders who missed the first breakout may view the pullback as a second entry opportunity. They go long at the breakout point, ensuring that the support level remains intact. This explains SOL's rebound from key levels. If SOL continues to rise, those who took profits shortly after the initial breakout may regret doing so and buy new long positions, further enhancing bullish momentum, and that’s how trends develop. In the second half of 2023, a similar return pattern played out perfectly in Bitcoin, laying the foundation for a massive bull market. Note that if SOL’s price rebound fails, the bullish pullback pattern will break down, allowing for a retracement back to the channel.
BlockBeats reminds users that the analysis is for reference only and should not be considered investment advice.