The opportunity of the monthly positive enveloping negative superimposed on the daily line shrinking volume stepping back to the 30-day line

A monthly bullish engulfing pattern in crypto, combined with shrinking daily volume and a pullback to the 30-day MA, signals potential trend reversal and accumulation.

Jul 26, 2025 at 06:49 am

Understanding the Monthly Positive Enveloping Negative Pattern

The monthly positive enveloping negative pattern is a significant candlestick formation in technical analysis, particularly within the cryptocurrency market, where volatility amplifies its implications. This pattern occurs when the current month’s candle completely "envelops" the previous month’s candle, transitioning from a red (negative) to a green (positive) body. This shift indicates a strong reversal in market sentiment. The prior month’s bearish momentum is overtaken by bullish pressure, suggesting that buyers have regained control after a period of selling dominance.

In the context of cryptocurrencies like Bitcoin or Ethereum, such a monthly reversal can signal the start of a new uptrend, especially if it forms after an extended downtrend. The engulfing nature implies that the opening price of the current month was lower than the close of the previous month, but the closing price of the current month exceeds the previous month’s open—showing a complete turnaround. Traders monitor this pattern closely because it often reflects institutional or large-cap accumulation at lower price levels.

Daily Chart Contraction: Shrinking Volume and Its Implications

When the monthly engulfing pattern coincides with shrinking volume on the daily chart, it suggests a period of consolidation or reduced selling pressure. Shrinking volume means fewer participants are actively trading, which can indicate that the fear-driven selling has exhausted. In crypto markets, where emotions heavily influence price action, declining volume during a pullback often precedes a resumption of the prior trend.

The contraction in volume is best analyzed using tools like the Volume Weighted Average Price (VWAP) or simple volume bars beneath the candlestick chart. A steady decline in daily trading volume while price moves sideways or slightly downward suggests that downside momentum is weakening. This environment sets the stage for a breakout, especially if the monthly trend turns bullish. Traders should watch for a volume spike on the upside as confirmation that new buying interest is entering the market.

Price Retracing to the 30-Day Moving Average

A key component of this setup is the daily price stepping back to the 30-day moving average (MA). The 30-day MA acts as dynamic support in uptrends and resistance in downtrends. When price pulls back to this level on reduced volume, it often finds support, especially if the broader monthly trend is turning positive.

To locate the 30-day MA on a crypto chart:

• Open a charting platform like TradingView or Binance’s built-in chart.
• Click on the “Indicators” button.
• Search for “Moving Average”.
• Set the period to 30 and ensure it’s based on the closing price.
• Apply it to the daily timeframe.

When the price touches or slightly dips below the 30-day MA but holds, it can be interpreted as a healthy correction. This behavior is common in strong trends where short-term traders take profits, allowing the price to retrace before continuing upward. The confluence of the monthly engulfing candle, low volume, and touch of the 30-day MA increases the probability of a successful bounce.

How to Confirm the Setup with Additional Indicators

While the engulfing pattern, volume contraction, and MA touch form a compelling narrative, confirmation from other technical tools enhances reliability. The Relative Strength Index (RSI) is useful to assess whether the market is oversold. An RSI below 30 on the daily chart during the pullback suggests exhaustion, while a move back above 50 confirms strengthening momentum.

Another valuable tool is the MACD (Moving Average Convergence Divergence). Watch for the MACD line to cross above the signal line near the 30-day MA. This bullish crossover, especially when volume begins to rise, supports the idea of renewed buying interest.

Additionally, traders can use on-chain data from platforms like Glassnode or CryptoQuant. Metrics such as Exchange Netflow (amount of crypto moving into exchanges) can indicate whether holders are selling. A low netflow during the pullback suggests weak selling pressure, reinforcing the technical setup.

Practical Trading Strategy Based on This Pattern

To trade this pattern effectively, consider the following steps:

• Wait for the monthly candle to close as a bullish engulfing pattern.
• On the daily chart, confirm that volume has been steadily decreasing during the recent price decline.
• Ensure the price has reached or is near the 30-day moving average.
• Look for a bullish reversal candle (e.g., hammer, bullish engulfing, or piercing line) on the daily chart at the MA level.
• Enter a long position when the next candle opens above the reversal candle’s high.
• Place a stop-loss just below the low of the reversal candle or below the 30-day MA.
• Use a risk-reward ratio of at least 1:3, targeting previous resistance levels or Fibonacci extensions.

This strategy works best in major cryptocurrencies with high liquidity, such as BTC, ETH, or BNB. Avoid low-cap altcoins where manipulation can distort technical signals.

Common Misinterpretations and Risk Management

One common mistake is acting on the engulfing pattern before the monthly candle closes. Premature entries based on incomplete data often lead to losses. Always wait for the full monthly close, which typically happens at 00:00 UTC on the first day of the new month.

Another risk is ignoring macroeconomic factors. Even a perfect technical setup can fail if there’s negative news, such as regulatory crackdowns or exchange outages. Traders should monitor crypto news feeds and calendar events.

Position sizing is critical. Never risk more than 1-2% of your trading capital on a single setup. Use trailing stops to protect profits if the price moves favorably. Also, avoid adding to losing positions—this pattern does not guarantee success, only improved odds under specific conditions.

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Frequently Asked Questions

What time does the monthly candle close in cryptocurrency markets?

The monthly candle closes at 00:00 UTC on the first day of the new month. For example, the January 2024 candle closed at 00:00 UTC on February 1, 2024. This timing is standardized across most exchanges and charting platforms.

Can this pattern occur on assets other than Bitcoin?

Yes, the monthly positive engulfing negative pattern can appear on any cryptocurrency with sufficient trading history, including Ethereum, Solana, and even some stablecoins during extreme volatility. However, it is most reliable in large-cap, high-liquidity assets.

How do I adjust the 30-day moving average for different time zones?

The 30-day moving average is calculated based on closing prices and is timezone-agnostic. Whether you're viewing the chart in EST, IST, or JST, the calculation remains consistent because exchanges use UTC timestamps for daily closes.

Does this pattern work on lower timeframes like 4-hour charts?

While engulfing patterns and moving averages appear on lower timeframes, the monthly engulfing setup is inherently macro-level. Shorter timeframes may show similar structures, but they lack the same weight and confirmation power as the monthly pattern.