The low absorption position of the 60-day line after the daily line three consecutive negatives shrinking volume

A shrinking-volume pullback to the 60-day MA after three red candles may signal seller exhaustion and a potential bullish reversal in crypto markets.

Jul 27, 2025 at 01:01 pm

Understanding the 60-Day Moving Average in Cryptocurrency Trading

The 60-day moving average (60-day line) is a widely used technical indicator in cryptocurrency trading that reflects the average closing price of an asset over the past 60 trading days. This long-term moving average helps traders identify the prevailing trend and acts as a dynamic support or resistance level. When the price is trading above the 60-day line, it typically signals a bullish trend, while trading below suggests bearish momentum. In volatile markets like cryptocurrency, the 60-day line smooths out short-term price fluctuations, offering a clearer picture of long-term direction.

Traders often watch for price interactions with the 60-day line during consolidation or pullback phases. A key scenario occurs when the price approaches the 60-day line after a downward correction and shows signs of stabilization. This is particularly significant when it follows a series of negative price candles, indicating that selling pressure may be subsiding. The term "low absorption position" refers to a situation where the price nears the 60-day line but trades with reduced volume, suggesting that large sellers are no longer dominating the market.

Interpreting Three Consecutive Negative Candles with Shrinking Volume

Three consecutive red (or negative) candles on a daily chart indicate sustained selling pressure over three trading sessions. However, when these candles appear with shrinking volume, it signals weakening bearish momentum. Volume is a critical confirmation tool in technical analysis — declining volume during a downtrend suggests that fewer participants are willing to sell at lower prices, potentially leading to a reversal.

In the context of cryptocurrency, where price swings can be extreme, shrinking volume during a three-day decline hints at exhaustion among sellers. Each candle represents diminishing participation:

• The first red candle may reflect active profit-taking.
• The second shows continued but less aggressive selling.
• The third, with even lower volume, indicates a lack of conviction in further downside.

This pattern often precedes a consolidation phase or a reversal, especially when the price is nearing a strong technical level like the 60-day moving average. Traders interpret this as a potential accumulation zone, where smart money may be quietly buying while retail panic subsides.

What Does "Low Absorption Position" Mean Near the 60-Day Line?

The low absorption position describes a phase where the market is "absorbing" sell orders near a key support level — in this case, the 60-day moving average — without significant price breakdown. "Absorption" refers to large institutional or whale traders purchasing assets being dumped by retail sellers, preventing a steep decline. When this occurs with shrinking volume, it suggests that the available sell-side liquidity is being mopped up efficiently.

For cryptocurrency traders, identifying this position involves monitoring:

• Price proximity to the 60-day line
• Declining volume across recent down days
• Candlestick patterns showing narrow ranges or doji formations
• Lack of new lower lows despite bearish sentiment

This setup often appears after a sharp correction in assets like Bitcoin or Ethereum, where long-term holders tend to step in. The combination of technical support and reduced selling pressure creates a potential inflection point. Traders using on-chain data may also observe decreasing exchange inflows, reinforcing the idea that holders are not capitulating.

How to Confirm a Valid Low Absorption Setup: Step-by-Step Analysis

To validate whether the current market structure reflects a genuine low absorption position near the 60-day line, follow these steps:

• Plot the 60-day simple moving average (SMA) on your daily chart using a trading platform like TradingView or Binance’s advanced charting tools. Ensure the setting is precisely 60 periods and applied to closing prices.

• Identify the last three daily candles and confirm they are red (closing lower than they opened). Use the volume indicator below the price chart to compare the volume bars across these days. The volume should show a downward trend, with the third day having the lowest volume.

• Check if the closing price of the third candle is near or above the 60-day line. A close within 1–2% of the moving average increases the significance of the setup.

• Look for bullish reversal patterns on the fourth day, such as a hammer, bullish engulfing, or a gap-up open. These patterns, combined with rising volume, can confirm that buying pressure is returning.

• Cross-verify with on-chain metrics such as exchange netflow (using Glassnode or CryptoQuant). A drop in exchange inflows during the three red days suggests holders are not selling, supporting the absorption theory.

• Monitor order book depth on major exchanges. A thick buy wall near the 60-day price level indicates institutional interest and potential support.

Trading Strategies Based on This Technical Setup

Traders can use this configuration to position for a potential bounce. One conservative approach is to wait for confirmation on the fourth day:

• If the fourth candle is green with expanding volume, consider entering a long position.
• Place a stop-loss just below the lowest low of the three red candles to manage risk.
• Use the 60-day line as a dynamic trailing support if the price begins to rise.

For options or futures traders:

• Consider buying call options on platforms like Deribit if Bitcoin or Ethereum shows this pattern.
• Hedge with put options only if the price closes decisively below the 60-day line with high volume, invalidating the setup.

Scalpers may look for immediate mean-reversion plays:

• Enter small long positions on the fourth day’s open if pre-market futures show strength.
• Target quick profits at the 5-day or 10-day moving average resistance.

Always combine this strategy with broader market context — avoid going long if major news or macroeconomic events suggest further downside.

Frequently Asked Questions

What timeframes are best for observing the 60-day line and three red candles?

The daily chart is essential for this setup, as the 60-day line is based on daily closes. However, traders can use the 4-hour chart to fine-tune entry timing once the daily structure shows signs of reversal.

Can this pattern fail? How do I protect my position?

Yes, the pattern can fail if macro conditions deteriorate or if a black swan event triggers panic selling. Always use a stop-loss order and avoid over-leveraging. A break below the 60-day line with high volume is a clear invalidation signal.

Does this setup work the same across all cryptocurrencies?

It is most reliable in large-cap cryptocurrencies like Bitcoin and Ethereum due to higher liquidity and more predictable technical behavior. Smaller altcoins with low volume may show false signals due to manipulation or thin order books.

How do I distinguish shrinking volume from low overall market activity?

Compare the recent volume to the 30-day average volume. If the three red candles show volume 30% below average, it’s likely shrinking due to disinterest. If overall market volume is down across all assets, it may reflect broader low volatility rather than absorption.