Can you still chase the first board with large volume and the second board with shrinking volume at the bottom?

Understanding the Concept of First Board with Large Volume and Second Board with Shrinking Volume

In cryptocurrency trading, volume is a key indicator that helps traders assess the strength of price movements. When a cryptocurrency breaks out from a consolidation zone or support level, it often does so with a surge in volume, commonly referred to as the 'first board with large volume.' This breakout signals strong buying pressure and can be an early indication of a trend reversal.

Following this initial move, the price may retrace slightly, forming what is known as the 'second board with shrinking volume.' During this phase, volume typically decreases, suggesting that selling pressure is weak and that the earlier buyers are still holding their positions. This combination of a high-volume breakout followed by a low-volume pullback is considered by many technical analysts to be a potential continuation pattern.

How to Identify the First Board with High Volume

To identify the first board correctly, traders should focus on specific candlestick patterns and volume behavior. A strong bullish candle that breaks above a key resistance or consolidates range with significantly higher volume than the previous candles is a classic sign of the first board.

• Look for a sharp increase in volume compared to the average volume over the past 10–20 periods.
• The candle should close near its high, indicating strong buyer dominance.
• It should occur after a clear downtrend or consolidation phase, not during an extended uptrend.

This setup indicates that institutional or smart money might be entering the market, setting the stage for a possible multi-day rally.

Recognizing the Second Board with Shrinking Volume

After the explosive first board, the price may pull back slightly, forming the second board. This correction is usually shallow and occurs on lower volume, which suggests that the earlier momentum hasn’t been negated.

• Volume must contract significantly compared to the first board.
• The pullback should not erase more than 50% of the prior candle’s range.
• Candlesticks during the second board may show indecision (e.g., doji or small-bodied candles), but not aggressive bearish rejection.

The idea here is that the market is digesting gains and preparing for another leg up, rather than reversing course.

Applying This Strategy in Crypto Markets

Cryptocurrency markets are highly volatile and influenced by both technical and fundamental factors. However, the first board/second board pattern remains applicable due to the herd behavior and emotional trading that dominate digital asset markets.

When applying this strategy:

• Use multiple timeframes to confirm the pattern. For example, a daily chart breakout confirmed by a 4-hour or 1-hour chart pullback.
• Monitor order book depth and liquidity levels to ensure that the volume isn't being manipulated by wash trading or bots.
• Combine with other indicators like moving averages or RSI to filter false breakouts.

Traders should also consider using tight stop-loss orders just below the second board’s low to manage risk effectively.

Risks and Limitations of This Approach

While the first board with large volume and second board with shrinking volume can offer high-probability setups, they are not foolproof. In fast-moving crypto markets, sudden news events, regulatory changes, or whale movements can invalidate even the strongest technical patterns.

• False breakouts are common, especially in altcoins with thin order books.
• Volume manipulation through wash trading can give misleading signals.
• Market sentiment shifts quickly, and patterns that work well in one cycle may fail in another.

It's crucial to maintain discipline and avoid overleveraging when entering trades based on this pattern.

Backtesting and Practical Examples

Before implementing this strategy live, traders should backtest it against historical data to understand its performance under different market conditions.

For example:

• On Bitcoin’s weekly chart, there have been several instances where a high-volume breakout was followed by a low-volume consolidation before resuming the uptrend.
• In Ethereum’s 2021 bull run, multiple altcoins showed similar behavior—large volume surges followed by quiet accumulation phases.

Using tools like TradingView or Python-based backtesting libraries, traders can analyze how often this pattern leads to profitable outcomes and adjust entry and exit rules accordingly.

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Frequently Asked Questions

What if the second board forms but volume doesn’t shrink?

If volume remains high during the second board, it could indicate continued selling pressure or distribution. This weakens the pattern and increases the likelihood of a reversal rather than a continuation.

Can this pattern appear in bear markets too?

Yes, although less commonly. In bear markets, you might see a sharp breakdown (first board) followed by a bounce (second board), but again, volume during the bounce should be lighter than during the breakdown.

Is this pattern more reliable in certain cryptocurrencies?

Larger-cap cryptocurrencies like Bitcoin and Ethereum tend to exhibit more reliable volume patterns due to deeper liquidity and reduced manipulation. Smaller altcoins can show erratic volume behavior, making the pattern less trustworthy.

Should I always wait for the second board before entering a trade?

Not necessarily. Some traders enter on the first board breakout, while others prefer waiting for the second board for better risk-reward ratios. It depends on your trading style and risk tolerance.