Should we be alert to the shrinking of the MACD red column when the moving average is arranged in a bullish pattern?

The shrinking MACD red column during a bullish moving average setup may signal weakening bearish momentum, but confirmation from price action and other indicators is crucial.

Jun 23, 2025 at 08:14 pm

Understanding the MACD Red Column and Its Significance

The Moving Average Convergence Divergence (MACD) is a widely used technical indicator in cryptocurrency trading. It consists of three main components: the MACD line, the signal line, and the MACD histogram (the red column). The red column represents the difference between the MACD line and the signal line. When the MACD line is above the signal line, the histogram appears as green bars, indicating bullish momentum. Conversely, when the MACD line falls below the signal line, the histogram shows red bars, signaling bearish pressure.

In certain market conditions, traders may observe that despite a bullish moving average arrangement, such as the 50-day MA crossing above the 200-day MA (a golden cross), the MACD red column begins to shrink instead of expanding into positive territory. This divergence raises concerns about whether the bullish setup is weakening or if it's a temporary pullback within an ongoing uptrend.

Shrinking red columns suggest decreasing bearish momentum, but they do not automatically confirm a reversal. Traders must assess this behavior alongside other confirming signals before making decisions.

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The Bullish Moving Average Pattern Explained

A bullish moving average pattern typically occurs when a short-term moving average crosses above a long-term moving average. In crypto markets, this often happens during strong upward trends. For instance, when the 9-day EMA crosses above the 21-day EMA, it forms a bullish alignment that many traders interpret as a buy signal.

Despite this seemingly positive setup, the price might still experience short-term corrections due to profit-taking or market sentiment shifts. During these moments, the MACD red column may start shrinking, which can be misleading if analyzed in isolation.

• Bullish crossovers should ideally coincide with increasing volume and positive price action.
• Divergences between moving averages and MACD behavior may indicate indecision in the market.
• Bearish MACD histograms shrinking during bullish setups can signal accumulation phases.

Traders must avoid relying solely on one indicator and instead look for confluence across tools like RSI, volume, and candlestick patterns.

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Why the Shrinking Red Column Matters

When the MACD red column shrinks, it means that the downward momentum is losing strength. However, in the context of a bullish moving average structure, this could mean two things:

• The downtrend correction is ending, and the original uptrend is resuming.
• A false breakout or fakeout is forming, preparing for a deeper correction or trend reversal.

This ambiguity makes it essential to analyze the price structure around key support/resistance levels. If the price remains above a crucial moving average and starts forming higher lows, the shrinking red column likely indicates momentum returning to the bulls. On the contrary, if the price breaks below key supports and fails to form higher highs, the shrinking red column may not be a reliable sign of recovery.

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How to Confirm the Signal from the Shrinking Red Column

To validate whether the shrinking MACD red column is a warning sign or a healthy consolidation phase, follow these steps:

• Check the MACD line’s position relative to the signal line: Even if the red column is shrinking, if the MACD line hasn’t crossed above the signal line yet, the bearish phase isn't over.
• Observe price action near key moving averages: If the price is consolidating above the 50-day or 21-day MA, it suggests strength.
• Use volume analysis: Rising volume during red column contraction hints at buying interest stepping in.
• Look for candlestick patterns: Bullish engulfing or hammer candles during this phase provide additional confirmation.
• Cross-reference with RSI: If RSI is rising from oversold levels, it supports the idea of renewed bullish energy.

These checks help filter out false signals and improve the accuracy of trade entries based on MACD and moving average configurations.

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Potential Risks in Ignoring the Shrinking Red Column

Many novice traders overlook subtle signs like a shrinking MACD red column because they focus only on the bullish moving average crossover. However, ignoring this signal can lead to several risks:

• Entering long positions too early without proper confirmation.
• Falling into bear traps where the market gives a false impression of strength.
• Facing sudden reversals after entering bullish trades prematurely.
• Experiencing increased drawdowns due to poor timing.

It's crucial to treat every technical signal with caution, especially when different indicators don’t align perfectly. The shrinking red column should act as a caution flag, not necessarily a sell signal, but a reminder to watch closely for further developments.

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Frequently Asked Questions

Q: Can the MACD red column shrink even when the price is going down?

Yes, the red column can shrink while the price continues to decline. This usually indicates that the selling pressure is easing, but it doesn’t guarantee a reversal unless supported by other indicators and price action.

Q: Is a shrinking red column always a positive sign in a bullish setup?

No, it’s not always positive. If the price continues to make lower lows and closes below key moving averages, the shrinking red column might just reflect a slowdown in momentum rather than a reversal.

Q: What timeframes are best for analyzing the MACD red column behavior?

Intermediate timeframes like the 1-hour or 4-hour charts offer the most reliable signals. Daily charts may lag too much, while lower timeframes like 5-minute or 15-minute charts tend to produce excessive noise.

Q: How can I automate monitoring of MACD red column changes?

Most advanced trading platforms like TradingView allow users to set up alerts for specific MACD histogram values or crossings. You can also use custom scripts or bots to monitor MACD behavior across multiple assets simultaneously.