Analysis: The SOL price chart shows a "bullish reversal" pattern, which may provide low-risk opportunities for trend breakout traders
ChainCatcher news, according to CoinDesk, renowned crypto analyst Omkar Godbolev published an analysis stating that the price chart of SOL 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 previous resistance level identified by a trendline connecting the highs of March and July, which has now turned into support. 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. The price of SOL broke out of this channel in early November, confirming the bullish inclination. SOL quickly climbed above $260, then retraced to the breakout point last week, which technical analysts refer 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: "A pullback occurs when the price breaks upward and then 'retracts' to its breakout level. Retracements are excellent levels to participate in an upward trend. Their timing 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 volatility in the direction of the breakout. Trading breakouts requires constant market monitoring and careful assessment of price and volume trends. Traders who miss the initial breakout often hope to enter during a successful retracement, just like SOL. These entry points are usually considered lower risk because potential exit points or stop-losses can be set just below the breakout point.Prospect theory suggests that people tend to avoid risk when realizing gains. In other words, when potential profits arise, traders often take those gains rather than letting winning trades continue. This trend explains why the first pullback after a breakout does not last long and prices typically retreat to the breakout point. This is because traders who entered with the breakout quickly take profits during the subsequent rise. Traders who missed the first breakout may view the retracement as a second entry opportunity. They go long at the breakout point, ensuring that the support level holds. 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 the 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 groundwork for a massive bull market. Note that if the price of SOL fails to rebound, the bullish retracement pattern will fail, allowing for a pullback back into the channel.
