Do you remember the last time you went on vacation? After blocking the door and heading towards your car, it is likely to turn abruptly to make sure the lock was safe before continuing your trip.
Financial markets, led by a variety of human emotions, exhibit similar behaviors. After a convincing movement beyond a long -standing resistance, the assets generally return to confirm the validity of the rupture. That serves as proof of the force of the previous resistance turned into support, after large manifestations develop.
The “Breakout and Retest Play” phenomenon is well known in all asset classes. The continuous sale of Bitcoin (BTC) could be just that: a new test of the rupture point or the old resistance turned into support of $ 73,835 violated in November.
In other words, the descending impulse could run out of steam in or closer to these levels, which potentially prepares the stage for a larger race.
BTC has fallen more than 15% to less than $ 80,000 this month, exposing the previous resistance turned into support to $ 73,835. The prices broke above that level in early November, ending the consolidation of months after Pro-Crypto Donald Trump won the presidential elections of the United States.
The trend of markets to retreat or review the breakdown before organizing more huge demonstrations has its roots in the aspects of investment behavior.
People are usually reluctant to risk when it comes to earnings. Then, when they face the profits, merchants quickly reserve them instead of allowing winning trade to run out. The so -called prospect theory explains why the manifestations subsequent to the rupture are abruptly without steam, which often leads to a new test of the breakdown. BTC holders have obtained profits around the $ 100K brand since December.
Now, as prices are reduced and near the breakdown, in this case, $ 73,835, market participants who lost the initial increase in demonstration, ensuring that the level is maintained. The rebound resulting from the previous resistance turned into support is based on more and more buyers, which potentially produces a larger rally.
That is precisely what happened in the third quarter of 2023 and August-September 2020.
On both occasions, the break and the new test produced larger manifestations for new records. However, merchants must take into account that a new failed test or the lack of a significant rebound indicates an underlying weakness that can evolve towards a complete descending trend.
Over the years, I have seen numerous examples of outbreaks of shoots/breakdown that lead to higher movements in traditional markets.
Consider the 10 -year Japanese government bonus yield. It activated a double background break in January 2024 and reviewed the level of rupture several times before rising at maximum of several years.
The Aud/Usd torque docked a large line of support trend in December, hinting at a deeper slide. The couple bounced in the resistance of the trend line earlier this month only to see strong losses this week.
