How to deal with the monthly MACD red column enlargement + weekly breakout of the previous high + daily shrinking volume correction?

A growing monthly MACD red column signals strong bearish momentum, but a weekly breakout and daily low-volume pullback suggest potential bullish reversal—highlighting the need for multi-timeframe analysis and cautious, well-managed long entries.

Jul 29, 2025 at 08:57 am

Understanding the Monthly MACD Red Column Enlargement

The MACD (Moving Average Convergence Divergence) is a momentum indicator that helps traders identify potential trend changes and momentum shifts. When the monthly MACD red column enlarges, it indicates that the bearish momentum is accelerating on a long-term timeframe. The red histogram represents the difference between the MACD line and the signal line, and its expansion suggests that the downward pressure is increasing. This condition typically occurs when the shorter-term moving average diverges further below the longer-term moving average.

It is crucial to recognize that a growing red histogram on the monthly chart reflects a stronger bearish sentiment over an extended period. However, this does not automatically imply that the price will continue to fall. In certain market cycles, such signals may precede oversold conditions or set the stage for reversals, especially when combined with other conflicting signals across different timeframes. Traders must avoid reacting solely to this signal without cross-verifying it with weekly and daily data.

Interpreting the Weekly Breakout of the Previous High

A weekly breakout of the previous high contradicts the bearish signal from the monthly MACD. This event occurs when the price on the weekly chart moves above a significant prior resistance level, indicating renewed bullish momentum. Such a breakout often reflects strong buying pressure and can signal the start of a new uptrend or a continuation of an existing one. Institutional and algorithmic traders often place importance on weekly resistance levels, so breaking above them can trigger automated buy orders.

To confirm the validity of the breakout:

• Ensure that the closing price on the weekly candle is above the previous high.
• Check for increased volume during the breakout week, which adds credibility to the move.
• Look for a follow-through in the subsequent week—a retest of the breakout level as support strengthens the signal.

This bullish development on the weekly chart suggests that short-term and mid-term buyers are gaining control, despite the long-term bearish momentum indicated by the monthly MACD.

Analyzing the Daily Shrinking Volume Correction

On the daily chart, a shrinking volume correction indicates that the selling pressure is decreasing. When price pulls back slightly but volume declines during the correction, it often means that bears are losing conviction. This type of consolidation is generally considered healthy, especially after a strong upward move. It allows the market to absorb recent gains without triggering a broad sell-off.

Key characteristics of a shrinking volume correction include:

• Price remains above key moving averages, such as the 20-day or 50-day EMA.
• Lower volume bars during down days compared to up days.
• Absence of long red candles, which would suggest panic selling.

This behavior reflects a balance between buyers and sellers, with neither side aggressively pushing the price. In the context of a weekly breakout, the shrinking volume correction may simply be a pause before the next leg up, particularly if the broader structure remains bullish.

Reconciling Conflicting Signals Across Timeframes

The situation presents a multi-timeframe divergence:

• Monthly: Bearish (expanding MACD red column)
• Weekly: Bullish (breakout of prior high)
• Daily: Neutral-to-bullish (low-volume pullback)

To navigate this conflict, traders should prioritize higher timeframes for trend context but respect lower timeframe signals for entry timing. The monthly chart sets the dominant tone, but weekly and daily charts provide actionable insights. In such cases, the weekly breakout may override the monthly bearish signal if supported by strong fundamentals or macro conditions.

Traders can consider the following approach:

• Wait for the monthly MACD histogram to stop expanding or begin contracting, which would signal weakening bearish momentum.
• Monitor for a bullish crossover on the monthly MACD (MACD line crossing above signal line), which would confirm a potential trend reversal.
• Use the weekly breakout level as a dynamic support zone for potential long entries during daily consolidations.

Position sizing should reflect the uncertainty—smaller positions may be warranted until the monthly signal aligns with the shorter-term bullish structure.

Practical Trading Strategy Based on This Setup

To act on this configuration, follow these steps:

• Mark the previous weekly high that was broken and monitor it as a support level.
• Watch the daily volume trend—if volume begins to rise on up days during the correction, it suggests accumulation.
• Set a buy limit order slightly above the daily consolidation range, anticipating a resumption of the uptrend.
• Place a stop-loss below the weekly breakout level to manage risk in case the breakout fails.
• Use the monthly MACD slope as a trailing filter—exit or reduce exposure if the red column resumes rapid expansion.

For confirmation, overlay on-chain data (if trading a cryptocurrency) such as exchange outflows or increasing active addresses, which can support the bullish narrative despite technical bearishness on the monthly chart.

Risk Management and Confirmation Tools

Given the conflicting signals, risk management is critical. Never assume any single indicator tells the full story. Combine technical tools with additional confirmation layers:

• Add RSI on the weekly chart—if it’s above 50 and rising, bullish momentum is intact.
• Use Ichimoku Cloud on the daily chart—if price is above the cloud, the trend is up.
• Check order book depth on major exchanges for cryptocurrencies—thicker buy walls near support suggest strong demand.

Avoid over-leveraging. The monthly MACD red expansion warns of underlying weakness, so even if entering long on weekly strength, keep position sizes modest until alignment improves across timeframes.

---

FAQ 1: Does a monthly MACD red column enlargement always lead to a downtrend?

No, an enlarging red column indicates increasing bearish momentum, but it does not guarantee a downtrend will continue. In some cases, it can occur during deep corrections within a larger bull market. The signal must be evaluated alongside price structure and higher timeframe breakouts.

FAQ 2: How can I confirm a weekly breakout is valid?

A valid breakout requires the weekly candle to close above the prior high, accompanied by rising volume. Additionally, the price should not immediately reverse below the level in the following week. Retesting the breakout zone as support adds further confirmation.

FAQ 3: What does shrinking volume during a daily correction imply about market sentiment?

Shrinking volume during a correction suggests that sellers are losing interest and there is no aggressive distribution occurring. This often precedes a resumption of the prior trend, especially if the correction is shallow and occurs within an established uptrend.

FAQ 4: Can I go long if the monthly MACD is bearish but weekly and daily signals are bullish?

Yes, but with caution. You can enter a long position with a tight risk management plan, using the weekly breakout level as support. However, monitor the monthly MACD closely—if the red column continues to expand aggressively, it may signal underlying weakness that could override shorter-term bullishness.