Is the third cross star with shrinking volume a stop to the decline after three consecutive negative lines on the monthly line?

The third cross star pattern with shrinking volume on a crypto monthly chart may signal a potential trend reversal or consolidation after a downtrend.

Jun 19, 2025 at 08:28 am

Understanding the Third Cross Star Pattern in Cryptocurrency Charts

In technical analysis, the third cross star pattern is a candlestick formation that often appears during periods of market indecision. In the context of cryptocurrency trading, where volatility is high and sentiment shifts rapidly, identifying such patterns becomes crucial for traders. The third cross star with shrinking volume specifically refers to three consecutive cross star candles forming on the monthly chart, each with progressively lower trading volume.

A cross star candle, also known as a doji, occurs when the opening and closing prices are nearly identical, suggesting uncertainty between buyers and sellers. When this happens three times in a row, especially after a downtrend marked by three consecutive negative lines, it may signal an impending reversal or at least a pause in the downward movement.

Decoding the Monthly Line Context

The monthly line (or monthly chart) offers a long-term perspective on price action. When three red or bearish candles appear consecutively, it typically reflects strong selling pressure over a prolonged period. Following such a trend, the appearance of a third cross star with diminishing volume can be interpreted as a sign of weakening momentum.

Shrinking volume implies that fewer traders are participating in the ongoing decline, which could mean that the bears are running out of steam. This is particularly relevant in the crypto market, where institutional and retail participation fluctuates widely. A reduction in volume without a corresponding price breakout might suggest that the current downtrend is losing its grip.

How to Identify the Third Cross Star Pattern

To correctly identify the third cross star with shrinking volume, follow these steps:

• Look for three consecutive negative monthly candles: These should be clearly bearish, with each closing lower than the previous.
• Check for cross star formations: Each of the next three monthly candles should have small bodies, ideally with equal-length wicks on both ends, indicating indecision.
• Confirm volume contraction: Use a volume indicator to ensure that the volume accompanying each of the cross stars is progressively lower compared to the prior candle.
• Assess the overall trend: Ensure that the pattern appears after a sustained downtrend, not within a sideways or consolidating phase.

This setup is more reliable in markets like Bitcoin, Ethereum, or other large-cap cryptocurrencies, where monthly chart movements tend to reflect broader macroeconomic factors and investor behavior.

Historical Precedents in Cryptocurrency Markets

Looking back at historical data from major cryptocurrencies, there have been instances where a third cross star with declining volume appeared after three bearish monthly candles, followed by either a consolidation phase or a reversal. For example:

• In early 2019, Bitcoin experienced a similar setup after a prolonged bear market. Following three red monthly candles, a series of dojis formed with shrinking volume, and shortly afterward, a significant rally began.
• During late 2022, Ethereum showed a comparable pattern, although the subsequent move was sideways rather than upward, indicating that while the pattern suggests a stop to the decline, it doesn't always guarantee a bullish reversal.

These examples highlight how crypto markets react differently based on external factors, including regulatory news, macroeconomic conditions, and global risk appetite.

Practical Steps for Traders

If you're a trader observing this pattern on a cryptocurrency's monthly chart, here’s what you can do:

• Avoid immediate action: Wait for confirmation before entering any position. A breakout above the high of the first bearish candle could serve as a potential signal.
• Use complementary indicators: Combine the pattern with tools like moving averages, RSI, or MACD to confirm whether the market is oversold or showing signs of accumulation.
• Monitor volume closely: If volume picks up again after the cross stars, especially on a bullish candle, it may indicate renewed buying interest.
• Set clear stop-loss levels: Since the crypto market is highly volatile, define your risk parameters before entering any trade.
• Consider the broader market environment: Even if the pattern suggests a halt in the downtrend, a negative macro backdrop—like rising interest rates or geopolitical instability—can prolong weakness.

By applying these strategies, traders can better interpret the significance of the third cross star with shrinking volume in the monthly time frame.

Frequently Asked Questions

What does a cross star pattern signify in crypto charts?

A cross star pattern, or doji, indicates market indecision. It forms when the opening and closing prices are nearly equal, often signaling a potential reversal or consolidation phase.

Is the third cross star with shrinking volume always a bullish signal?

Not necessarily. While it often suggests a halt in the downtrend, it doesn't guarantee a bullish reversal. The broader market context and additional indicators must be considered.

Can this pattern occur in other time frames besides the monthly chart?

Yes, cross star patterns can appear in any time frame, but their significance increases in longer-term charts like the weekly or monthly due to reduced noise and increased reliability.

How reliable is this pattern in predicting market bottoms?

While historically useful, no single candlestick pattern is 100% accurate. In cryptocurrency markets, this pattern works best when confirmed by volume and supported by other technical indicators.