How to operate the monthly RSI high turn + weekly three consecutive negative + daily line shrinkage rebound?

The Monthly RSI High Turn signals weakening bullish momentum when RSI peaks above 70 and turns down, suggesting a potential trend reversal to bearish.

Jul 25, 2025 at 01:00 pm

Understanding the Monthly RSI High Turn Signal

The Monthly RSI High Turn is a technical indicator pattern that occurs when the Relative Strength Index (RSI) on the monthly chart reaches an overbought level—typically above 70—and then begins to turn downward. This reversal suggests that the momentum behind a prolonged bullish trend may be weakening. Traders interpret this as a potential early warning of a trend reversal from bullish to bearish. The key is not just the RSI crossing above 70, but the subsequent turn or drop from that peak, which signals that buying pressure is diminishing. To identify this accurately, ensure your trading platform is set to the monthly timeframe and the RSI period is set to 14, the standard setting. Confirm that the RSI has clearly peaked and started declining—this is the “turn” in "high turn."

Identifying Three Consecutive Negative Weekly Candles

After detecting the monthly RSI high turn, the next condition is to verify three consecutive negative (red) candles on the weekly chart. A negative candle indicates that the closing price is lower than the opening price for that week. To confirm this pattern:

• Open the weekly chart of the cryptocurrency in question.
• Look for three weeks in a row where the candle is red (or black, depending on your chart theme).
• Each candle must have a close lower than its open, and the sequence must be uninterrupted.
• It’s essential to check that no intervening green candle breaks the sequence.
• Use volume indicators to assess whether selling pressure is increasing during these weeks.

This pattern reinforces the bearish sentiment suggested by the monthly RSI turn. The combination of a long-term momentum shift and consistent weekly declines increases the probability of a sustained downward movement.

Analyzing Daily Chart Contraction and Rebound

The final component of this strategy involves the daily chart, specifically looking for price contraction followed by a rebound. Price contraction refers to a period where the daily candlesticks show narrowing ranges, often seen in doji candles, small-bodied candles, or inside bars. This indicates market indecision and reduced volatility, often preceding a breakout.

To detect a rebound after contraction:

• Identify a cluster of 3 to 5 small-range daily candles following a downtrend.
• Watch for a subsequent positive (green) candle that closes higher than the previous candle’s close.
• Confirm that the rebound candle has increased volume, which adds credibility to the move.
• The rebound should break the high of the last contraction candle to confirm momentum shift.

This phase suggests that selling pressure has exhausted and buyers are stepping in. When this occurs after the monthly and weekly bearish signals, it may represent a short-term countertrend bounce rather than a full reversal.

Executing the Trade Setup

Once all three conditions are met—monthly RSI high turn, three consecutive negative weekly candles, and daily contraction with rebound—you can consider entering a trade. The typical approach is to enter short on the confirmation of the daily rebound, anticipating that the bounce is temporary and the downtrend will resume.

Steps to execute:

• Wait for the first green daily candle after the contraction to close.
• Set a short entry at the open of the next day’s candle.
• Place a stop-loss just above the high of the rebound candle to limit downside risk if the uptrend continues.
• Determine a take-profit level based on prior support zones or Fibonacci extensions from the recent decline.
• Use position sizing to ensure risk per trade does not exceed 1–2% of your trading capital.

It’s critical to monitor volume during the rebound. If volume is low, the bounce is more likely to fail. High volume may suggest strong buying interest, which could invalidate the setup.

Using Indicators to Confirm the Strategy

To enhance the reliability of this multi-timeframe strategy, integrate additional technical tools:

• Apply moving averages (e.g., 50-day and 200-day) on the daily chart. If the price is below both, it confirms a bearish trend.
• Use the MACD on the daily chart to check for bearish momentum. A signal line crossover below zero supports the short bias.
• Monitor on-chain data such as exchange inflows or whale movements, which can provide context for price action.
• Consider funding rates in futures markets. Negative funding rates suggest a bearish sentiment in the derivatives market.

These tools do not replace the core signals but act as filters to reduce false positives. For example, if the daily rebound occurs with strong on-chain accumulation, the setup may be less reliable.

Managing Risk and Adjusting Positions

Risk management is vital when trading based on confluence across multiple timeframes. Since this strategy involves anticipating a failed rebound, the market may continue upward, leading to losses if not managed properly.

Guidelines for risk control:

• Always use a stop-loss order and never trade without one.
• Scale out of the position—close 50% at the first target, then trail the stop on the remainder.
• Avoid adding to losing positions, even if the monthly RSI remains high.
• Reassess the setup if the price closes above the 20-day moving average on the daily chart.
• Keep a trading journal to record each instance of this pattern and its outcome.

This disciplined approach ensures longevity in volatile crypto markets.

Frequently Asked Questions

What if the daily rebound candle has very high volume?

High volume during the rebound increases the chance that buyers are in control. In such cases, the bounce may not be temporary. It’s advisable to avoid the short setup or wait for price to reject a key resistance level before entering.

Can this strategy be applied to altcoins?

Yes, but with caution. Major cryptocurrencies like BTC and ETH tend to have more reliable RSI signals due to higher liquidity. For low-cap altcoins, whipsaw and manipulation can distort RSI readings. Always cross-verify with on-chain and order book data.

How long should I hold the short position?

There is no fixed duration. Exit based on predefined targets or if price action contradicts the thesis—such as closing above the 50-day MA or forming a bullish engulfing pattern. Trailing stops can help lock in profits.

Does the RSI period affect the signal?

The standard 14-period RSI is recommended. Using shorter periods (e.g., 9) makes RSI more volatile and prone to false signals. Longer periods (e.g., 21) may delay the high turn detection. Stick to 14 for consistency across timeframes.