Solana's SOL now presents a promising second chance for investors eyeing bullish breakouts. This week, SOL has seen a significant 7% rise, reaching $193, as it rebounds from a crucial support level formed by the trendlines linking peaks from March and July. These trendlines, along with those connecting April and August lows, outline a wide descending channel, which encapsulated extended range trading from March to October.
Early November marked a pivotal moment when SOL broke out of this channel, affirming its bullish trajectory. The cryptocurrency surged past $260 before retreating to the breakout benchmark in the past week, illustrating a classic bullish "throwback pattern" as termed by technical analysts. This phenomenon occurs when assets initially break upward only to return to the breakout threshold, providing a strategic entry point for traders keen on upward trends.
According to Charles D. Kirkpatrick II and Julie R. Dahlquist in "Technical Analysis: The Complete Resource for Financial Market Technicians," such throwbacks, though often brief in both time and distance, offer a renewed opportunity for breakout traders.
These traders target assets that repeatedly fail to cross a resistance threshold; upon a decisive breakout, they anticipate significant momentum in that direction.
Trading breakouts necessitates vigilant market observation and precise scrutiny of price and volume movements. Investors who overlook the first breakout often capitalize on the secondary opportunity presented by a throwback, such as SOL's. These re-entry points are typically viewed as lower risk since an exit, or stop-loss, can be positioned just beneath the breakout threshold.
The behavioral aspect of trading, notably prospect theory, explains the throwback pattern. It highlights traders' tendency towards risk aversion when securing profits. Consequently, the initial rally post-breakout often lacks sustainability, as traders swiftly lock in gains rather than allowing the trade to mature.
This is where it gets compelling. Traders who missed the initial surge tend to perceive the throwback as another chance. They invest at the breakout price, thereby maintaining support levels. SOL's bounce from this critical level can be attributed to this strategy.
Should SOL continue its ascent, those who cashed out shortly after the primary breakout might reconsider and make new investments, thereby amplifying bullish momentum. This is a vital mechanism in trend formation.
A comparable throwback pattern was evident with bitcoin (BTC) in the latter half of 2023, leading to a significant bull run. However, it's crucial to note that the bullish throwback pattern for SOL would be deemed void if the price rebound dissipates and retreats into the channel once again.