According to ChainCatcher news and a report from CoinDesk, renowned crypto analyst Omkar Godbolev published an analysis stating that SOL's price chart displays a 'bullish return' pattern. According to technical analysis theory, this pattern is seen as a low-risk opportunity for trend breakout traders. SOL's price soared over 7% this week to $193, rebounding from the previous resistance level turned support defined by a 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, including long-term range 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 and then retreated last week to the breakout point, which technical analysts refer to as a bullish 'return pattern.'
Technical analysis masters Charles D. Kirkpatrick II and Julie R. Dahlquist stated in their work (Technical Analysis: The Complete Resource for Financial Market Technicians) that 'When the price breaks upward and then 'pulls back' to its breakout level, a retracement occurs. Retracements are excellent levels to participate in an upward trend. Their duration and distance are often short, but they typically provide a second lower-risk entry opportunity for breakout traders.' Breakout traders look for assets that struggle to surpass specific levels. When the price finally breaks through, these traders enter the market, anticipating significant movement in the breakout direction. Trading breakouts requires constant market monitoring and careful assessment of price and volume trends. Traders who missed the initial breakout often hope to enter during a successful pullback, just like SOL. These entry points are usually considered lower risk, as potential exit points or stop-loss orders can be set just below the breakout point.
The prospect theory suggests that when people gain profits, they typically avoid risk. In other words, when potential profits arise, traders usually take those profits rather than let winning trades continue. This tendency explains why the first rebound after a breakout does not last long, and prices often revert to the breakout point. This is because traders who entered with the breakout quickly take profits in the subsequent rise. Traders who missed the initial 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 the rebound of SOL from a key level. 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 this is 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 be invalidated, allowing for a return to the channel.
