Is it a low-buying opportunity for three consecutive negative lines with shrinking volume to step back on the 60-day line?

Three consecutive red candles with shrinking volume near the 60-day line may signal a potential bounce in crypto markets.

Jun 28, 2025 at 05:00 pm

Understanding the Technical Setup: Three Consecutive Negative Lines with Shrinking Volume

In the world of cryptocurrency trading, technical analysis plays a crucial role in identifying potential market reversals or continuations. One such pattern that traders often observe is three consecutive negative lines on a candlestick chart accompanied by shrinking volume. This combination can signal weakening selling pressure and may indicate an imminent bounce.

The term negative lines refers to candlesticks where each closing price is lower than the previous one, forming a sequence of bearish candles. When this occurs three times in a row, it typically reflects strong short-term selling momentum. However, if during these three sessions, trading volume decreases, it suggests that fewer participants are willing to push the price further down, potentially indicating exhaustion among sellers.

This setup becomes more significant when it coincides with a key moving average like the 60-day line, which acts as a dynamic support level for many digital assets. The idea is that if the price pulls back to this long-term average without breaking it decisively, there could be buyers stepping in, making it a possible low-buying opportunity.

Historical Behavior Around the 60-Day Moving Average in Crypto Markets

Cryptocurrencies tend to respect certain key moving averages, especially over longer timeframes like the 60-day moving average (DMA). Historically, major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) have seen bounces after retracing toward this line during uptrends. The 60 DMA serves as a balance between short-term noise and long-term trends, offering a clearer picture of underlying market sentiment.

When the price reaches this level after a correction and forms three red candles with declining volume, it might suggest that the downtrend is losing steam. In some cases, especially when the broader market remains bullish, this pullback can offer a favorable entry point for traders who missed the initial move upward.

However, it's important to note that while this pattern has worked historically, it doesn’t guarantee future performance. Traders must always look at additional context such as macroeconomic conditions, exchange flows, and on-chain metrics before considering it a valid trade setup.

Volume Analysis: Why Shrinking Volume Matters

Volume is a critical component in confirming any technical signal. In the case of three consecutive negative lines, shrinking volume implies that although the price continues to decline, fewer traders are participating in the sell-off. This divergence between price and volume can often precede a reversal.

For example, if you're observing BTC dropping for three straight days but notice that each day’s volume is lower than the previous, it indicates that bears are not aggressively pushing the price down anymore. That could mean bulls are waiting for a better entry point or that panic selling has subsided.

It’s also essential to compare current volume levels with historical averages. If the volume during the recent decline is significantly below the 20-day average, it strengthens the argument that the drop lacks conviction. This kind of behavior is often followed by a consolidation phase or even a sharp rebound, especially near strong support levels like the 60-day line.

How to Confirm This Pattern Before Entering a Trade

Before jumping into a trade based solely on this candlestick and volume pattern, consider using additional tools and filters to increase your confidence:

• Check alignment with higher timeframes: Ensure that the daily chart is still above the 60-day line and that no major breakdowns have occurred on the weekly or monthly charts.
• Look for bullish candlestick patterns: After the three red candles, watch for signs of reversal such as hammer, morning star, or bullish engulfing patterns.
• Use oscillators for confirmation: Tools like RSI or MACD can help confirm whether the asset is oversold or showing signs of accumulation.
• Monitor order book depth and liquidity: A shallow order book during the decline may indicate lack of real selling pressure.
• Observe on-chain metrics: Metrics such as exchange inflows/outflows, holder balances, and realized price can provide deeper insights into institutional and retail behavior.

By combining these elements with the core pattern of three red candles with shrinking volume near the 60-day line, you can build a more robust thesis around potential entry points.

Step-by-Step Guide to Evaluate and Execute This Trade Setup

Here is a detailed step-by-step approach to assess and execute a trade based on this pattern:

• Identify the pattern: Scan for cryptocurrencies showing three consecutive negative candles across the daily timeframe.
• Verify shrinking volume: Compare the volume of each of those days; ensure it is declining rather than increasing or stable.
• Locate the 60-day line: Plot the 60-day moving average on the chart and check whether the price is approaching or already touching it.
• Confirm trend context: Ensure the overall trend is still intact—price should remain above the 60-day line or retesting it from above.
• Assess other indicators: Use tools like RSI, MACD, and on-chain data to corroborate the potential for a bounce.
• Wait for a reversal candle: Instead of entering immediately, wait for a bullish candle close to confirm buying pressure is returning.
• Set stop-loss and take-profit levels: Place a stop just below the swing low created during the decline and set realistic profit targets based on prior resistance zones or Fibonacci extensions.

Each of these steps ensures that you’re not acting impulsively but instead following a structured and logical process grounded in technical evidence.

Risks and Limitations of This Strategy

While the three negative lines with shrinking volume near the 60-day line can present a compelling opportunity, it's not foolproof. There are several risks and limitations to keep in mind:

• False signals are common: Not every time the price hits the 60-day line will result in a bounce. Sometimes, it breaks through decisively, leading to further declines.
• Market manipulation: Especially in smaller-cap altcoins, large players can manipulate volume and price action to create misleading setups.
• Lack of fundamental support: Even if technically sound, the absence of positive news or macro tailwinds can prevent a recovery.
• Whipsaw risk: Markets can violently reverse directions multiple times around key levels, trapping traders on both sides.

Therefore, this strategy works best when used in conjunction with other analytical tools and proper risk management techniques.

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Frequently Asked Questions

Q1: Can this pattern work on shorter timeframes like 4-hour or 1-hour charts?

Yes, the concept can apply to shorter timeframes, but its reliability generally increases on daily and weekly charts due to reduced volatility and noise. On shorter intervals, the same setup might occur more frequently but with less predictive power unless confirmed by higher-timeframe context.

Q2: What if the volume doesn't shrink but stays flat during the three red candles?

Flat volume suggests that selling pressure is consistent but not intensifying. It may indicate ongoing accumulation or distribution depending on price action. For a stronger buy signal, shrinking volume is preferred as it shows waning interest in selling.

Q3: Should I only consider this setup in bull markets or can it work during sideways phases too?

This setup can work in sideways or consolidating markets as well, especially if the price is bouncing off a known support level like the 60-day line. However, in ranging environments, false breakouts are more common, so additional filters like Bollinger Bands or volatility measures become even more critical.

Q4: How do I differentiate between a healthy pullback and a trend reversal when seeing this pattern?

Healthy pullbacks usually exhibit decreasing volume and limited deviation from key moving averages. Trend reversals often come with increased volatility, larger candle bodies, and decisive breaks below critical supports. Using tools like the Elder-Ray indicator or analyzing whale movement on-chain can also help distinguish between the two.