After the moving average is glued together, the volume breaks through with a large long positive, but the volume shrinks the next day. Can I chase it?

A surge in volume with a large bullish candle amid glued moving averages may signal institutional activity, but fading volume the next day raises doubts about the trend's sustainability.

Jun 26, 2025 at 01:42 am

Understanding the "Glued Moving Averages" Scenario

When moving averages are glued together, it typically means that short-term and medium-term moving averages (such as the 10-day, 20-day, and 50-day) have converged closely in price. This situation often indicates a period of consolidation or low volatility. In cryptocurrency markets, this can signal either an impending breakout or a continuation of sideways movement.

The key observation here is that when volume suddenly surges with a large long positive candle, it may indicate institutional or whale activity entering the market. This kind of candlestick pattern is commonly seen during accumulation phases or before major price moves. However, what makes this scenario complex is that the following day sees a significant volume shrinkage, which can confuse traders about whether to enter a position or wait for further confirmation.

What Does a Volume Breakout Mean in Crypto?

Volume is one of the most critical indicators in technical analysis, especially in crypto trading where liquidity and sentiment can change rapidly. A volume breakout occurs when trading volume spikes significantly above its recent average. When this happens alongside a large bullish candle, it's often interpreted as strong buying pressure.

In the case described, the sudden spike in volume combined with a long green candle suggests that buyers overwhelmed sellers during that session. However, the lack of follow-through volume the next day raises concerns about sustainability. In crypto, where FOMO (fear of missing out) can drive rapid rallies, it’s essential to distinguish between genuine momentum and false breakouts.

• High volume on a bullish candle usually signals conviction.
• Low volume on the following day could mean profit-taking or hesitation from buyers.
• This setup may indicate a temporary push rather than a sustainable trend.

Analyzing Candlestick Patterns After the Glue-Up

After the moving averages converge tightly, the market is essentially at a crossroads. The appearance of a large bullish candle with high volume may suggest a resolution to the consolidation phase. But again, the lack of volume the next day complicates the picture.

Some traders interpret this as a sign of smart money stepping in—where large players buy aggressively during the volume surge and then allow retail traders to chase the move, only to sell into the momentum. Others see it as a failed breakout attempt, especially if the price fails to hold above key resistance levels.

• Look for candlestick wicks on both days to assess rejection.
• Check if the bullish candle engulfed previous bearish candles.
• Observe whether the price closes above key moving averages after the surge.

Should You Chase the Trade? Evaluating Risk and Reward

Chasing a trade in such a setup depends heavily on your risk tolerance, trading strategy, and position sizing rules. Since the volume drops the next day, there’s a risk of reversal or consolidation. If you're a momentum trader, you might still consider entering on a retest of support or a breakout of the high of the large candle.

However, if you're a more conservative trader, waiting for confirmation of trend continuation may be safer. Confirmation can come in the form of:

• A new candle closing higher with increased volume
• A break above key resistance zones
• A pullback and bounce off the moving averages

Also, consider using tight stop-loss orders if you do decide to chase the move, especially in volatile crypto markets where sharp reversals are common.

Alternative Strategies: Waiting for Pullbacks or Confirmations

Instead of chasing immediately after the volume surge, experienced traders often prefer to wait for a pullback or volume confirmation before entering. This helps avoid getting caught in a false breakout or a trap set by whales.

One effective method is to monitor for:

• Higher lows forming after the volume spike
• Volume returning to previous elevated levels
• Price holding above the glued moving averages

If these conditions align, it increases the probability that the initial surge wasn’t just noise but part of a broader trend. In crypto, patience often pays off, especially when dealing with setups that lack immediate follow-through.

Managing Emotions and Avoiding FOMO

FOMO is particularly strong in crypto due to the fast-moving nature of the market. Seeing a massive candle with heavy volume can make traders feel like they’re missing out on a big opportunity. However, chasing entries without proper analysis can lead to emotional decision-making and poor risk management.

To combat this:

• Stick to your trading plan and predefined entry points
• Use limit orders instead of market orders to control entry prices
• Don’t let social media hype or chatroom tips influence your decisions

Remember, not every big candle leads to a sustained rally. It’s better to miss a potential move than to enter blindly and suffer losses later.

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Frequently Asked Questions

Q: What does it mean when moving averages are glued together?

When multiple moving averages converge closely in price, it indicates a consolidation phase. In crypto, this often precedes a breakout, though it can also result in continued range-bound behavior.

Q: Why is volume important after a breakout candle?

Volume confirms the strength behind price movements. High volume on a breakout candle shows strong participation, while shrinking volume afterward may signal weak follow-through or distribution.

Q: Can I use limit orders to avoid chasing the price?

Yes, using limit orders allows you to define your entry point and avoid overpaying. It also helps maintain discipline in volatile environments like crypto.

Q: Should I always wait for volume confirmation before entering a trade?

While not mandatory, volume confirmation improves the odds of successful trades. Many professional traders use it as a filter to validate price action and avoid false signals.