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1996issue C121-3

Two-bar exponential-average breakout as setup, stop, and flatten

A 20-period exponential average of price locates a setup, cancels a pending alert, and exits an open position. After two-bar persistence on the required side of that average, entry is armed as a stop beyond the two-bar extreme, not at the average itself.

  • Two consecutive lows above a 20-period exponential average, or two consecutive highs below it, only define two-bar-persistence. That test locates a setup and does not place the order.
  • After the two-bar test, a breakout-stop is armed beyond the two-bar high for a long or the two-bar low for a short. A tick-buffer of ten ticks or points may be added as an instrument-specific input.
  • Alert-state stays live only while price remains on the required side of the average. If price returns through that line before the breakout-stop is hit, the pending setup is cancelled.
  • The same 20-period exponential average is the average-referenced-exit: a long closes when the low reaches or crosses it, and a short closes when the high reaches or crosses it.
Entries in this reading3 entries
Current trackBreakout system74 readingsRule-based entry193 readingsMoving average465 readings

One average, three separable layers

A 20-period exponential average of price is the shared reference in this construction. It is used to locate the setup, cancel a pending alert, and exit an open position.

Editorial: split that shared line into three jobs. Two-bar-persistence only finds a setup. A breakout-stop beyond the two-bar extreme turns the setup into an order. The same average is then recycled as the average-referenced-exit that flattens the trade.

Two-bar persistence locates the setup

A long setup is defined only after two consecutive lows print above the 20-period exponential average.

A short setup is defined only after two consecutive highs print below that same average.

That two-bar-persistence test marks location. It does not, by itself, become the order.

The breakout stop turns the setup into an order

After the two-bar test, a long is armed as a buy stop beyond the two-bar high. A short is armed as a sell stop beyond the two-bar low.

A tick-buffer of ten ticks or points may be added to that breakout-stop. The buffer is treated as an instrument-specific input rather than a fixed constant.

Alert-state can cancel the setup before entry

The pending two-bar alert is invalidated if price returns through the average before the breakout-stop is hit.

Alert-state therefore stays live only while price remains on the required side of the average. Recrossing that line cancels the pending setup.

The same average flattens the position

A long is closed when the low reaches or crosses the average. A short is closed when the high reaches or crosses it.

The flatten rule uses the same 20-period exponential average that defined the setup.

One encoding skips the buffer

At least one encoding omits the tick-buffer and treats the two-bar location condition itself as the actionable signal.

Editorial: dropping the buffer changes where the order is armed. It does not remove the need to state how a live setup is cancelled and how an open trade is flattened.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
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19981-8 pp.Next on Breakout systemA noise-offset breakout judged after walk-forward re-estimationThe procedure buys at market when price clears the lookback high by at least the noise offset, and sells at market when price clears the lookback low by that same offset.
All readings on this track · 23 readings
  1. 1995Range breakout rules with an expansion filter and moving-average exits
  2. 1995Write a weekly breakout as one parameterized entry and exit
  3. 1995Combining a trend rule, a breakout trigger, and a seasonal filter
  4. 1996Constructing a two-bar clearance breakout from a twenty-session exponential average
  5. 1996Two-bar exponential-average breakout as setup, stop, and flatten
  6. 1998A noise-offset breakout judged after walk-forward re-estimation
  7. 1998Gating a weekly average crossover with stored support and resistance
  8. 1998Moving-average candidates gated by support and resistance
  9. 2000Constructing next-close envelope targets for breakout stops
  10. 2001February soybean high breakout and June trailing stop
  11. 2005Box-and-breakout states written as ordered entry and exit rules
  12. 2007Match trend and breakout rules to the market condition
  13. 2010How a JM internal band becomes long and short entry and exit rules
  14. 2013Constructing a three-average trend-aligned breakout system
  15. 2016Volume-confirmed breakout entry rules
  16. 2017How to construct exponential standard deviation bands
  17. 2017Four-day green candle breakout as one swing procedure
  18. 2018Constructing inverse ETF breakouts above a 200-day average
  19. 2018Evaluating trend, breakout, and regression rules by average robustness
  20. 2019A crypto pair breakout after a sideways range
  21. 2019Next-session breakout rules after a high-volume close
  22. 2020Altcoin dual-stop breakout with a timed exit
  23. 2020Critiquing required stops in mechanical breakout systems
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