What do you think when the volume breaks through the average volume line but the volume rises with shrinking volume? How to identify the opposite pull-up?

A surge in volume above the average line may signal strong interest, but shrinking volume during a rally could warn of weakening momentum and a possible reversal.

Jun 19, 2025 at 12:42 am

Understanding the Volume Breakthrough and Its Implications

When traders observe that volume breaks through the average volume line, it often signals a shift in market sentiment. The average volume line is typically calculated as a moving average of trading volumes over a specific period, such as 20 or 50 days. A breakout above this level may indicate increased interest in an asset, especially if it coincides with a price movement. However, when this occurs alongside shrinking volume, it introduces ambiguity into the interpretation.

In cryptocurrency markets, where volatility is high and order books can be manipulated by large players, understanding the context behind the volume surge becomes critical. If volume increases but then starts to shrink during a rally, it may suggest that initial buying pressure has weakened, which could lead to a reversal.

Important: Always cross-reference volume patterns with other technical indicators like RSI, MACD, or price action before making decisions.

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Interpreting Shrinking Volume During a Rally

A situation where volume rises initially and then shrinks during a price rally can point to waning momentum. This phenomenon often occurs when early buyers take profits or when institutional participants stop accumulating. In crypto, this pattern can be seen on exchanges like Binance or Coinbase, particularly during altcoin rallies.

Key signs to watch for include:

• • Price continues to rise despite decreasing volume — a potential bearish divergence.
  • Lack of new buyers stepping in at higher prices.
  • Frequent rejections at resistance levels without strong volume support.

This pattern suggests that while the price may still move upward temporarily, the underlying strength of the trend is weakening. It’s essential to analyze candlestick formations and check whether the rally is being driven by retail FOMO or genuine institutional participation.

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Identifying Opposite Pull-Up Patterns

An opposite pull-up (also known as a “false breakout” or “trap”) occurs when the price appears to break out in one direction but quickly reverses. In crypto, these are common due to thin liquidity and algorithmic trading strategies employed by whales.

To identify an opposite pull-up:

• • Look for sharp, sudden spikes in price followed by rapid retracements.
  • Check if the volume during the spike is not significantly higher than average — a sign of fake breakout.
  • Use order book analysis to detect wash trades or spoofing.
  • Monitor time-based charts versus volume-based candles to better understand real-time liquidity absorption.

These patterns are frequently observed during major news events or around key support/resistance zones. Traders who enter based on the initial breakout often get stopped out when the price reverses sharply.

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Technical Indicators That Help Confirm Volume Signals

Volume alone cannot provide reliable signals unless supported by additional tools. In cryptocurrency trading, combining volume data with technical indicators enhances decision-making accuracy.

Some effective combinations include:

• • RSI Divergence: When price makes a new high but RSI doesn’t confirm, especially with shrinking volume, it's a warning signal.
  • MACD Histogram: A shrinking histogram during a rally confirms loss of momentum even if the price is rising.
  • Volume Weighted Average Price (VWAP): Helps assess whether the current price is above or below the average traded price weighted by volume.
  • On-Balance Volume (OBV): Tracks cumulative volume flow; a declining OBV during a rally hints at distribution.

Using these tools together allows traders to filter out false signals and focus on more robust setups. Many charting platforms like TradingView offer built-in tools for integrating these indicators seamlessly.

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Practical Steps for Analyzing Volume Patterns in Crypto Charts

Analyzing volume patterns requires a structured approach, especially in fast-moving crypto markets. Here’s how to do it effectively:

• • Open a charting platform and enable the volume bars at the bottom of the price chart.
  • Overlay a moving average on the volume chart — commonly used periods are 20 or 50.
  • Identify recent peaks in volume and mark them as reference points.
  • Compare current volume surges against these historical levels to determine abnormal activity.
  • Watch for divergences between volume and price trends — they often precede reversals.
  • Zoom in on specific candlesticks where volume spiked but price failed to continue — these may be traps or manipulations.

For example, if Bitcoin’s price jumps 10% in a few hours but the corresponding volume bar doesn’t surpass the average volume line, it might indicate a lack of real demand. Conversely, a sharp increase in volume above the average line could suggest strong institutional buying or panic selling.

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Frequently Asked Questions

Q: Can I rely solely on volume to make trading decisions in crypto?

While volume is a powerful tool, relying on it alone can lead to misleading conclusions. Always combine it with price action, candlestick patterns, and other technical indicators for confirmation.

Q: How do I set up average volume lines on my charting platform?

Most platforms allow you to add a moving average directly to the volume pane. For instance, in TradingView, click on "Indicators," search for "Moving Average," and apply it to the volume section of the chart.

Q: What does it mean if volume drops during a downtrend?

A drop in volume during a downtrend may suggest that sellers are losing interest, potentially signaling a bottom or consolidation phase. However, this needs to be confirmed with other tools.

Q: Is there a difference between on-chain volume and exchange volume?

Yes. On-chain volume refers to actual blockchain transactions, whereas exchange volume reflects trading activity on platforms. Exchange volume can sometimes be inflated due to wash trading, so always verify using trusted sources.