How to identify the ideal buying point of the daily moving average long arrangement + 4-hour shrinking volume and stepping back on the 5-day line?

A daily moving average long arrangement with 4-hour volume contraction near the 5-day MA signals a high-probability bullish entry in a strong uptrend.

Jul 29, 2025 at 12:42 am

Understanding the Daily Moving Average Long Arrangement

The daily moving average long arrangement refers to a configuration where multiple moving averages on the daily chart are aligned in ascending order, typically with shorter-term averages above longer-term ones. This arrangement often signals a strong bullish trend. For instance, when the 5-day moving average (MA) is above the 10-day MA, which in turn is above the 20-day MA, and so on, the market is considered to be in a healthy uptrend. This alignment suggests sustained buying pressure and investor confidence.

To identify this arrangement, traders must first plot the required moving averages on the daily candlestick chart. Most trading platforms allow users to add simple moving averages (SMA) or exponential moving averages (EMA). It is essential to use consistent calculation periods. Once plotted, observe whether the MAs are stacked in ascending order from top to bottom: 5 > 10 > 20 > 50. When this condition is met, the foundation for a potential long entry is established.

It is important to confirm that the long arrangement is not just a temporary crossover. The spacing between the moving averages should be visibly widening, indicating momentum. A compressed or tangled set of MAs, even if ordered, may suggest weakness. The ideal scenario features clear separation and parallel progression of the moving averages upward.

Interpreting 4-Hour Volume Contraction and Price Pullback

After confirming the daily long arrangement, the next signal comes from the 4-hour chart. A shrinking volume during a price correction indicates diminishing selling pressure. When volume declines while the price pulls back toward the 5-day moving average, it suggests that bears are losing control and bulls may soon resume the uptrend.

To analyze this, switch to the 4-hour timeframe and overlay a volume histogram. Look for a series of candles where the price moves downward but the volume bars are progressively smaller. This volume contraction during the dip is a critical clue. It implies that the pullback is not driven by strong selling but rather by profit-taking or minor consolidation.

Simultaneously, monitor the price action relative to the 5-day moving average on the daily chart. The ideal pullback brings the price close to, but does not decisively break below, this average. On the 4-hour chart, this may appear as a series of lower highs and lower lows approaching the dynamic support of the 5-day MA. The convergence of low-volume retracement and proximity to the 5-day line increases the probability of a bounce.

Confirming Price Reaction at the 5-Day Moving Average

The 5-day moving average acts as dynamic support in an established uptrend. When the price approaches this level on the 4-hour chart and shows signs of stabilization, it becomes a focal point for entry. Traders should look for bullish reversal candlestick patterns such as hammer, bullish engulfing, or morning star formations near this level.

To enhance accuracy, apply additional confirmation tools. One effective method is using the Relative Strength Index (RSI) on the 4-hour chart. If the RSI dips below 50 but remains above 30 during the pullback, it indicates the market is not oversold into panic but rather cooling off. A subsequent rise in RSI back above 50 can confirm renewed bullish momentum.

Another useful tool is horizontal support levels. If the 5-day MA coincides with a prior resistance-turned-support zone or a Fibonacci retracement level (such as 38.2% or 50%), the confluence strengthens the validity of the support. Traders should mark these levels in advance and watch for price reactions when they align with the moving average.

Executing the Trade: Entry, Stop-Loss, and Position Sizing

Once the daily long arrangement is confirmed, volume contraction is observed on the 4-hour chart, and price approaches the 5-day MA with bullish reversal signals, the setup is complete. The entry point should be placed on the close of the bullish confirmation candle that forms at or above the 5-day MA.

For example:

• Wait for a 4-hour candle to close above its open and above the 5-day MA
• Ensure the candle’s low does not break below the MA by more than a small wick
• Enter a long position at the close of that candle or on the open of the next

Place the stop-loss just below the recent swing low on the 4-hour chart or beneath the 5-day MA, allowing for minor volatility. A common approach is to set the stop 1% to 2% below the entry price, depending on the asset’s volatility.

Position sizing should follow risk management rules. Never risk more than 1% to 2% of the trading account on a single trade. Calculate the position size based on the distance between entry and stop-loss. For instance:

• Determine the dollar amount you are willing to lose
• Divide that by the difference between entry and stop-loss price
• The result is the number of units or contracts to trade

Monitoring Post-Entry Price Behavior

After entering the trade, monitor the subsequent price action on both the 4-hour and daily charts. The ideal outcome is a resumption of the uptrend with expanding volume on upward moves, confirming renewed buying interest. The price should reclaim previous highs on the 4-hour chart and continue trading above the 5-day MA.

Watch for any signs of failure, such as a close below the 5-day MA on high volume, which could indicate a breakdown of the setup. Also, observe whether the daily moving averages maintain their long arrangement. If the 5-day MA flattens or turns down, the trend structure may be weakening.

Use trailing stops to protect profits. One method is to move the stop-loss to breakeven once the price moves in your favor by the amount of the initial risk. Further adjustments can be made to lock in gains as the price advances.

Frequently Asked Questions

What if the 5-day MA is broken during the pullback?

A decisive close below the 5-day MA on the daily chart invalidates the setup. On the 4-hour chart, a minor wick below the MA may still be acceptable if the candle closes above it and volume remains low. However, a full close below with high volume suggests bearish control and the trade should be avoided.

Can this strategy be applied to all cryptocurrencies?

This strategy works best on high-liquidity cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), where volume data is reliable and price action is less susceptible to manipulation. Low-cap altcoins often exhibit erratic volume and price movements, making the signals less trustworthy.

How do I adjust the strategy during major news events?

During high-impact news, such as regulatory announcements or macroeconomic data releases, volume patterns may become distorted. In such cases, delay entries until the market stabilizes and volume returns to normal levels. The long arrangement may still hold, but the pullback signals should be re-evaluated post-event.

Is EMA better than SMA for this setup?
Exponential Moving Averages (EMA) react faster to price changes and may provide earlier signals, which can be beneficial in fast-moving crypto markets. However, they are also more prone to whipsaws. Simple Moving Averages (SMA) offer smoother, more stable support levels. Traders may test both and choose based on their risk tolerance and trading style.