Return to All time Highs

When price is returning to an all time high, the first time it attempts to break it, it typically sweeps that level and then consolidates for a while. It’s only after a period of consolidation that it will be able to break out and make a new high.

This is seen with the example of Gold below, where over a long period of several years it stayed below the all time high of 1920$. When it did return to these levels in 2020, it briefly broke above it but then consolidated over several years till an actual breakout not until 2024.

Another example of BTC below

Here’s a breakdown of the typical rationale:

• The “Sweep” or Initial Test: When price returns to a previous ATH, that level often acts as a significant psychological and technical resistance level.
  • Seller Liquidity: A large number of traders who bought the stock at or near the previous ATH and held through the subsequent decline are often still in a loss or just breaking even. As the price approaches the old high, these holders are often eager to sell their shares (liquidity) to exit their losing or breakeven positions. This surge of supply can temporarily push the price back down, creating the “sweep” or initial reversal.
  • Short-Seller Interest: Some short-sellers may view the resistance at ATHs as a good entry point to bet against the stock, adding to the selling pressure.
• The Consolidation Phase: After the initial rejection or sweep, the price often enters a consolidation pattern near the old ATH.
  • Indecision: This phase represents a period of indecision as the market digests the selling pressure. Buyers are attempting to absorb the supply from the trapped sellers and short-sellers, while sellers are attempting to maintain the old resistance level.
  • Accumulation/Distribution: The longer the consolidation, especially if it occurs in a tight range with decreasing volume, the more time “smart money” (large institutional players) has to potentially accumulate shares from the weaker hands.
• The Breakout: A sustained breakout to new ATHs typically occurs when the buying demand finally overwhelms the remaining supply at that price level.
  • Clearing Liquidity: The consolidation effectively clears out the remaining liquidity (i.e., the standing sell orders) from the old holders and short-sellers.
  • Confirmation: A true breakout is often characterized by high volume and strong momentum, confirming that significant new demand is entering the market, suggesting a conviction to move into uncharted price territory.