Is the monthly volume positive enveloping negative + weekly standing firm on the 20-day moving average a trend reversal?

A monthly volume engulfing pattern paired with weekly strength above the 20-day MA may signal a potential trend reversal, but confirmation through price action and additional indicators is crucial.

Jul 02, 2025 at 05:43 pm

Understanding the Monthly Volume Enveloping Pattern

In technical analysis, volume enveloping is a rare but significant candlestick pattern that occurs when the volume of one period completely engulfs the volume of the previous period. When this happens on a monthly chart and the current month’s volume is positive while the previous month's was negative, it can be interpreted as a potential shift in market sentiment.

The positive monthly volume engulfing negative indicates that buyers have taken control after a period of selling pressure. This could signal a reversal from a downtrend to an uptrend, especially if supported by other indicators. However, volume alone should not be used in isolation; it must be analyzed alongside price action and other technical tools for confirmation.

Interpreting Weekly Price Action Relative to the 20-Day Moving Average

The 20-day moving average (MA) is a commonly used short-term trend filter in cryptocurrency trading. When the weekly price consistently stands firm above the 20-day MA, it suggests that the asset is in a relatively strong position. A sustained move above this average typically reflects bullish momentum, particularly when there are no major breakdowns or bearish crossovers.

Traders often look at how price reacts near the 20-day MA—if the price repeatedly bounces off this level without breaking below it, it reinforces the idea of underlying strength. In the context of cryptocurrencies, which are known for high volatility, such behavior may hint at accumulation phases or institutional interest supporting the price floor.

Combining Monthly Volume and Weekly 20-Day MA for Reversal Signals

When analyzing whether these two conditions together form a trend reversal signal, traders need to consider both timeframes carefully. The monthly volume engulfing pattern shows a long-term shift in sentiment, while the weekly chart's resilience around the 20-day MA supports short-to-medium term strength.

This combination may indicate that the downtrend is losing steam and that bulls are beginning to dominate. However, it is crucial to look for additional confirmations such as higher highs, increasing open interest (in futures markets), or breakouts above key resistance levels before confirming a full reversal.

Historical Examples in Cryptocurrency Markets

Looking back at historical data from major cryptocurrencies like Bitcoin and Ethereum, there have been instances where similar patterns preceded meaningful reversals:

• During late 2018, Bitcoin showed a monthly volume engulfing pattern with increased buying activity following a sharp correction. Shortly after, the price began consolidating and eventually surged in mid-2019.
• In early 2020, Ethereum demonstrated weekly support near its 20-day MA during the March crash. Despite the panic, it held above the average and later participated in the broader bull run.

These examples illustrate that while not foolproof, such combinations can serve as early warnings for potential shifts in market direction.

Practical Steps to Confirm a Trend Reversal

To determine if this pattern truly signals a trend reversal, traders should follow these steps:

• Monitor price action over the next few weeks to see if new highs are formed or if consolidation continues.
• Check on-chain metrics such as large whale movements or exchange inflows/outflows to gauge institutional participation.
• Analyze volume divergence between price and volume—if prices rise but volume contracts, the rally might be weak.
• Use oscillators like RSI or MACD to detect overbought/oversold conditions or divergences that may suggest continuation or exhaustion.
• Watch for news events or macroeconomic factors that could influence the broader crypto market.

By combining these tools, traders can better assess whether the observed pattern is indeed a reversal or just a temporary pause in the existing trend.

Common Misinterpretations and Pitfalls

One common mistake is treating any single candlestick or volume pattern as a definitive signal. The monthly volume engulfing pattern may appear bullish, but if it forms during a prolonged uptrend, it could instead indicate exhaustion rather than a reversal. Similarly, the weekly 20-day MA holding might simply represent temporary support rather than a robust trend change.

Another pitfall involves ignoring the broader context. For instance, if Bitcoin dominance is rising, altcoins might show false positives due to shifting investor focus. Also, market manipulation or pump-and-dump schemes can distort volume readings, especially in smaller-cap tokens.

Therefore, always ensure you're evaluating these signals within the framework of the overall market structure and not in isolation.

Frequently Asked Questions

Q: Can I rely solely on monthly volume engulfing patterns to make trading decisions?

No, volume engulfing patterns should be used in conjunction with other technical indicators and price action analysis. Relying solely on volume can lead to false signals, especially in volatile markets like cryptocurrency.

Q: How reliable is the 20-day moving average in crypto trading compared to traditional markets?

While the 20-day MA is widely used in both crypto and traditional markets, its reliability in crypto can vary due to higher volatility and lower liquidity in some assets. It works best when combined with volume and support/resistance levels.

Q: What timeframes should I monitor alongside the monthly and weekly charts?

It's advisable to also watch the daily and 4-hour charts to get a clearer picture of immediate support/resistance areas and entry points. These shorter timeframes help refine trade setups based on the broader trend.

Q: Are there specific tools or platforms that highlight volume engulfing patterns automatically?

Yes, platforms like TradingView offer customizable candlestick scanners that can detect engulfing patterns, including volume-based ones. You can set up alerts or use built-in scripts to identify them more efficiently.