CoinVoice has recently learned that, according to CoinDesk, well-known crypto analyst Omkar Godbolev published an analysis article stating that the price chart of SOL shows a 'bullish return' pattern. According to technical analysis theory, this pattern is regarded as a low-risk opportunity for trend breakout traders. The price of SOL surged over 7% this week to $193, rebounding from a previously identified resistance level, which turned into support, based on a trendline connecting the highs from March and July. This line, along with another connecting the lows from April and August, defines a large descending channel encompassing long-term fluctuations from March to October. The price of SOL broke out of this channel in early November, confirming the bullish tendency. SOL quickly climbed above $260, then retraced back to the breakout point last week; technical analysts refer to this back-and-forth as the 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 'retraces' to its breakout level, a pullback occurs. Pullbacks are excellent levels to participate in an upward trend. Their timing and distance are often short, but they usually provide a second low-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, expecting significant volatility 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, just like SOL. These entry points are typically considered lower risk because potential exit points or stop-losses can be set just below the breakout point.
Prospect theory suggests that people generally avoid risk when realizing gains. In other words, when potential profits arise, traders tend to take those gains rather than let winning trades continue. This trend explains why the first pullback after a breakout doesn't last long and prices often retrace back to the breakout point. This is because traders who entered at the breakout will 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 support 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 it and buy new long positions, further enhancing the bullish momentum; this is how trends develop. In the second half of 2023, a similar return pattern perfectly unfolded in Bitcoin, laying the foundation for a massive bull market. Note that if SOL's price rebound fails, the bullish pullback pattern will invalidate, allowing for a retracement back into the channel.
[Original link]
