2015issue C0624-27
SMA-confirmed supply and demand breakouts as one mechanical procedure
This archive article treats a 30-period simple moving average and a closing breach of a supply or demand zone as one mechanical procedure. The average must confirm bias and location, and a flat or conflicting average is an explicit abstention rule rather than a weaker signal.
- A long is defined only after price closes through a supply zone, the 30-period simple moving average slopes up, and price is above that average.
- A short is defined only after price closes through a demand zone, the 30-period simple moving average slopes down, and price is below that average.
- When the 30-period simple moving average is flat or does not confirm the zone-break bias, the procedure takes no trade.
- A breached demand zone is treated as new supply, and a breached supply zone is treated as new demand.
One mechanical procedure
The archive specifies a mechanical trading system: a complete procedure that states entry, exit, position size, and no-trade conditions as one testable sequence. The combined procedure is specified on a 30-minute chart for currency and commodity markets that are trending.
The moving average in this ruleset is a 30-period simple average whose slope and price location confirm or veto a directional bias. Support and resistance are horizontal supply and demand bands, often at round numbers ending in 00 or 50, that flip role after a closing breach.
How a long or short is defined
A long is defined only after price closes through a supply zone, the 30-period simple moving average slopes up, and price is above that average. A short is defined only after price closes through a demand zone, the 30-period simple moving average slopes down, and price is below that average.
Long signals are ignored when the 30-period average slopes down. Short signals are ignored when it slopes up. The average is there to confirm both bias and location, not to soften a zone breach that points the other way.
How zones change role
A demand zone is a price band that previously supported buying and becomes supply after a downside close through it. A supply zone is a price band that previously capped price and becomes demand after an upside close through it.
Zones used by the method are commonly drawn at round numbers whose last two digits are 00 or 50. The trade condition is a close through the band, not a touch of the band.
Stops, targets, and size
The documented stop-target pair is 60 against 120 pips, a 1:2 risk-reward geometry, with 1 percent risk per trade. That planned 1:2 stop-to-target pair is the archive statement of positive expectancy: planned reward larger than planned risk.
Optional risk overlays include moving the stop to breakeven after 40 pips and a trailing stop of about 50 percent after 100 pips.
Editorial reading
Editorial: TradersWeek reads this archive as a design lesson in combining confirmation and location, not as a claim about later market results. The useful specification is that slope, price location, and a closing zone flip must agree before a long or short exists.
Editorial: a flat or conflicting 30-period average is written as a veto. If the average does not confirm the zone-break bias, the specified action is to take no trade.
All readings on this track · 12 readings
- 1989A daily checklist that separates the screen from the entry
- 2002Prior-week high and low as this week's support and resistance
- 2004A daily veto that left only a two-point afternoon short
- 2005A real-time audit after overriding a moving-average filter
- 2006Discretionary rules before leverage in forex
- 2008Flipped support and resistance as target zones
- 2011When expected chart setups fail, trade the pop
- 2012A mechanical rule set from the gold positioning reports
- 2014Volume-backed support and resistance construction
- 2015SMA-confirmed supply and demand breakouts as one mechanical procedure
- 2016Trade within your league as one decision process
- 2018Building a pre-trade checklist with stops and levels