Can I chase after the long positive line that breaks through the previous high and then shrinks and steps back?

Understanding the Long Positive Line in Technical Analysis

In cryptocurrency trading, technical analysis plays a crucial role in identifying potential entry and exit points. A long positive line refers to a candlestick with a significantly large bullish body, indicating strong buying pressure during that period. When this long positive line breaks through the previous high, it suggests that buyers have taken control of the market temporarily. However, if this is followed by a contraction or a retracement, traders often question whether they should chase the price movement.

Important: Chasing a long positive line after it breaks through a prior high but then begins to shrink and step back requires caution and deeper context.

What Happens After the Breakout?

After a long positive line successfully breaks through the previous resistance level, there are two primary scenarios:

• The breakout leads to a sustained upward trend as new buyers enter the market
• The breakout fails due to lack of continued support, leading to profit-taking and a pullback

This retracement phase is where many traders hesitate. The key lies in understanding whether the initial breakout was supported by volume and momentum. If the volume behind the long positive line was significant and the RSI (Relative Strength Index) hasn't entered overbought territory yet, the likelihood of continuation increases.

Why Does the Price Shrink and Step Back?

It's common for prices to experience a temporary pullback after a sharp move upwards. This shrink and step back behavior can be attributed to several factors:

• Profit-taking: Early buyers may sell part of their holdings to lock in profits
• Testing the breakout: The market tests whether the new level will hold as support
• Lack of fresh buyers: If no new buyers step in at higher levels, the price may retreat

These dynamics suggest that not every breakout is sustainable. Traders must assess whether the pullback is shallow and brief or deep and prolonged. A shallow correction often indicates healthy market structure and presents an opportunity to enter at a better price.

How to Evaluate Whether to Chase the Move

Before chasing a long positive line that has already started to retract, consider the following steps:

• Analyze the volume: Was the breakout accompanied by high volume? Sustained volume during the retracement also matters
• Check support levels: Is the price finding support near key moving averages or Fibonacci retracement levels?
• Monitor indicators: Tools like MACD and RSI can provide insights into momentum and potential reversals
• Observe price action: Are there bullish reversal patterns forming during the pullback, such as hammer candles or engulfing patterns?

Chasing without confirmation can lead to entering at unfavorable levels. It’s better to wait for a re-entry signal before jumping in.

Practical Example Using a Cryptocurrency Chart

Let’s take a real-world scenario using BTC/USDT on a 4-hour chart. Suppose Bitcoin forms a long positive line that breaks above a key resistance zone around $60,000. Immediately afterward, the price pulls back to $59,000, showing signs of consolidation.

Here’s how you might approach this situation:

• Identify the key resistance level that was broken — in this case, $60,000
• Watch for the price to stabilize near the 20-period EMA (Exponential Moving Average)
• Look for a bullish candlestick pattern like a morning star or a pin bar forming near the pullback area
• Confirm with rising volume and positive divergence in the RSI indicator

If these conditions align, the retracement could be a valid setup to enter a long position rather than blindly chasing the initial breakout.

Frequently Asked Questions

Q1: Should I always wait for a pullback after a long positive line breakout?Not necessarily. If the breakout is strong and supported by volume, some traders may choose to ride the momentum. However, waiting for a pullback allows for better risk-reward ratios and more precise entries.

Q2: How do I differentiate between a healthy pullback and a failed breakout?A healthy pullback usually doesn’t break below the original breakout point and shows signs of buying interest. A failed breakout often sees the price falling below the previous resistance with increasing bearish momentum.

Q3: Can I use options or futures to hedge my position when chasing such moves?Yes, advanced traders can use derivatives to hedge exposure. However, this requires a good understanding of leverage, margin, and liquidation risks, especially in volatile crypto markets.

Q4: What timeframes are best suited for analyzing long positive line breakouts?Higher timeframes like the 4-hour or daily charts tend to provide more reliable signals. Lower timeframes can offer early entries but come with increased noise and false signals.