Weekly bottom divergence + daily line large volume medium Yang start signal

Weekly bottom divergence with a daily large-volume medium Yang candle signals strong bullish reversal potential in crypto, ideal for high-probability long entries.

Jul 29, 2025 at 01:15 am

Understanding Weekly Bottom Divergence in Cryptocurrency Trading

In the context of cryptocurrency technical analysis, weekly bottom divergence is a powerful reversal signal that occurs when the price of a digital asset makes a lower low, but a momentum indicator such as the Relative Strength Index (RSI) or MACD forms a higher low. This divergence suggests weakening downward momentum despite the price decline, indicating a potential bullish reversal on the horizon. For traders focusing on longer-term trends, spotting this pattern on the weekly chart is critical because it reflects a shift in market sentiment over a broader timeframe.

To identify weekly bottom divergence, traders must compare price action with a momentum oscillator across two troughs. For example, if Bitcoin drops to $58,000 in Week 1 and then falls further to $56,000 in Week 2, but the RSI moves from 30 in Week 1 to 34 in Week 2, this forms a bullish divergence. The key here is that the momentum is improving even as the price continues to fall, which often precedes a strong upward move. This type of signal is especially reliable when it appears after an extended downtrend and is confirmed by other technical factors such as volume and candlestick patterns.

Interpreting the Daily Chart: Large Volume Medium Yang Candle

A large volume medium Yang candle on the daily chart serves as a confirmation signal following the weekly divergence. In candlestick terminology, a "Yang" candle refers to a bullish (green or white) candle where the closing price is higher than the opening price. A "medium" Yang candle typically has a body that is neither extremely short nor excessively long—usually occupying 40% to 70% of the candle’s total range.

When this type of candle appears with large trading volume, it indicates strong buying pressure entering the market. High volume confirms that the price movement is supported by significant market participation, reducing the likelihood of a false breakout. For instance, if Ethereum forms a medium green candle after several red candles, and the volume bar spikes above its 20-day average, this suggests accumulation by institutional or whale investors.

To validate this signal, traders should check:

• Whether the candle closes near its high, indicating sustained demand.
• If the volume exceeds the average volume of the past 10 to 20 days.
• Whether the candle breaks above a key resistance level or moving average, such as the 50-day EMA.

Combining Weekly and Daily Signals for Entry Confirmation

The confluence of weekly bottom divergence and a daily large volume medium Yang candle creates a high-probability setup for entering long positions in cryptocurrencies. This multi-timeframe alignment increases the reliability of the signal because it reflects both structural shift (on the weekly chart) and immediate momentum (on the daily).

Traders can use the following checklist to confirm the signal:

• Confirm the weekly RSI or MACD shows a clear higher low while price makes a lower low.
• Wait for the daily chart to display a medium-sized green candle.
• Ensure the volume on the daily candle is at least 1.5 times the 20-day average volume.
• Check that no major resistance levels are immediately above the current price.
• Verify that the broader market (e.g., Bitcoin trend) is not in a strong downtrend that could drag the asset down.

Once all conditions are met, the optimal entry point is typically on the close of the confirmation candle or the opening of the next day’s candle. This minimizes the risk of premature entry while still capturing the early stages of the potential rally.

Setting Stop-Loss and Take-Profit Levels

Risk management is essential when trading based on divergence and candlestick signals. After entering a long position, setting a stop-loss below the most recent swing low on the daily chart helps protect against false signals. For example, if the last low was $42,000, placing the stop-loss at $41,500 provides a buffer while limiting downside risk.

Take-profit levels can be determined using technical structures:

• The first target can be set at the most recent swing high before the downtrend.
• A second target may align with a Fibonacci extension level, such as 1.618x of the prior decline.
• Alternatively, use a risk-reward ratio of at least 1:2, meaning the potential profit should be double the risk.

Position sizing should also be adjusted based on volatility. In highly volatile altcoins, smaller position sizes are advisable even when the signal appears strong.

Backtesting the Strategy on Historical Data

To validate the effectiveness of this combined signal, traders should backtest it on historical cryptocurrency price data. Select major assets like Bitcoin (BTC), Ethereum (ETH), or large-cap altcoins such as Binance Coin (BNB). Use a trading platform that supports multi-timeframe analysis and volume-weighted indicators.

Steps for backtesting:

• Download weekly and daily OHLC (Open, High, Low, Close) data for the past 3 years.
• Identify instances where weekly RSI showed bottom divergence.
• Filter for days immediately following the divergence where a medium Yang candle appeared with volume 1.5x the average.
• Record the entry price, stop-loss, and subsequent price movement over the next 5 to 20 days.
• Calculate the win rate, average gain, and maximum drawdown for all trades.

Platforms like TradingView allow scripting using Pine Script to automate this process. Create a custom indicator that highlights weekly divergence and overlays daily volume spikes to streamline identification.

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Frequently Asked Questions

What timeframes should I use to detect weekly bottom divergence accurately?

Use the weekly closing price and compare it with the RSI(14) or MACD on the same chart. Ensure the data is based on UTC time to align with major exchange settlements. Avoid using compressed timeframes; always verify with raw weekly candles.

Can this signal appear in sideways markets?

Yes, but it’s less reliable. In a range-bound market, divergence may lead to a retest of the range rather than a breakout. Always confirm with volume and trend structure—prefer signals that occur after a clear downtrend.

How do I differentiate a medium Yang candle from a long or short one?

Measure the body-to-wick ratio. A medium Yang candle has a body that occupies 40%–70% of the total candle height. If wicks are very long, it may indicate rejection, even if the close is strong.

Is volume more important than candle size in this signal?
Volume is critical. A medium Yang candle without high volume may reflect weak buying. Large volume confirms institutional participation. Always prioritize volume confirmation over candle size alone.