Is it a lure to buy if three consecutive positive lines with shrinking volume approach the previous high?

Three green candles with shrinking volume near a prior high may signal weak bullish momentum and potential reversal in crypto markets.

Jun 21, 2025 at 04:35 pm

Understanding the Candlestick Pattern

In technical analysis, candlestick patterns provide traders with insights into potential market reversals or continuations. One such pattern is the appearance of three consecutive positive lines, which typically indicates a bullish trend. However, when these gains occur alongside shrinking volume and approach a prior high, it raises questions about the strength of the uptrend.

Each of the three positive candles must close higher than the previous one. This suggests buying pressure. Yet, if the volume behind each candle decreases, it may indicate that fewer traders are participating in pushing the price upward. In the context of cryptocurrencies, where volatility and sentiment play significant roles, this combination can be misleading.

The Role of Volume in Confirming Trends

Volume serves as a crucial indicator of trend strength. When prices rise but volume declines, it signals weakness in the rally. In traditional markets, this divergence often precedes a pullback. Cryptocurrency markets, though more speculative, also react to such imbalances.

• A rising price on shrinking volume implies that large players may not be supporting the move.
• Retail traders might be driving short-term momentum without institutional backing.
• Reduced volume near a resistance level (such as a previous high) often leads to rejection.

This behavior is especially relevant in altcoins or less liquid tokens where sudden spikes can be easily manipulated. Traders should look for volume confirmation before considering a breakout valid.

Historical Behavior Near Resistance Levels

Approaching a prior high while showing signs of weakening momentum can be a trap set by market makers or whales. The price might test the level multiple times, creating false breakouts. These traps aim to induce retail panic or greed, triggering stop-loss orders or attracting buyers at unfavorable levels.

• If the price repeatedly tests the previous high without strong volume, it's likely facing resistance.
• False breakouts are common in crypto due to its 24/7 nature and lack of centralized regulation.
• Traders who enter long positions expecting a breakout may find themselves stuck in a ranging market.

This pattern becomes more significant when observed across multiple timeframes. A daily chart showing three green candles with declining volume near resistance, combined with similar behavior on the hourly chart, increases the likelihood of a reversal.

Behavioral Aspects Behind the Pattern

Cryptocurrency trading is heavily influenced by market psychology. When a coin approaches a previous high after three up days with shrinking volume, early holders may take profits. At the same time, new buyers jump in anticipating a breakout.

• Profit-taking from experienced traders can stall the rally.
• Latecomers entering on momentum may push the price briefly higher but lack staying power.
• Without fresh inflows of capital, the rally fades, leading to a drop.

This dynamic creates a classic bull trap scenario. Bulls expect continuation, but bears step in once they see the lack of conviction in the rally. Understanding this interplay helps traders avoid being caught off guard.

How to Approach Trading This Scenario

If you encounter this pattern in a cryptocurrency chart, consider the following steps:

• Identify the previous high clearly – Ensure it’s a well-defined resistance area.
• Check volume trends across all three candles – Use a volume histogram to confirm shrinking participation.
• Observe wicks and closes – Long upper wicks near resistance suggest rejection.
• Wait for a clear breakout or breakdown – Avoid premature entries based on anticipation.
• Place stops cautiously – If entering a trade, use tight stops below recent swing lows.

For those looking to sell, approaching the prior high with weak volume offers a good opportunity to exit. For buyers, waiting for a confirmed breakout with increased volume reduces the risk of falling into a trap.

Frequently Asked Questions

What does shrinking volume during a rally imply?

Shrinking volume during an upward move suggests that fewer traders are participating in the rally. It often indicates a lack of conviction among buyers and may precede a reversal or consolidation phase.

Can this pattern appear in any cryptocurrency?

Yes, this pattern can appear in any cryptocurrency regardless of market cap or trading pair. However, it tends to be more pronounced in smaller-cap coins due to their lower liquidity and higher susceptibility to manipulation.

Is it reliable to make decisions solely based on this pattern?

No single candlestick pattern should be used in isolation. Combine it with other indicators like moving averages, RSI, or Fibonacci levels for better accuracy. Also, always assess the broader market sentiment before making a decision.

Should I immediately sell if I see this pattern?

Not necessarily. While the pattern raises caution flags, it doesn’t guarantee a reversal. Traders should monitor how the price reacts after reaching the prior high and adjust positions accordingly.