20 SMA attracting candles from demand zone

In the below BTC/USD weekly chart we can see a demand zone rally base rally, and when the candles approached the demand zone, there was an instant pullback towards 20-period Simple Moving Average (SMA) - candles moved upwards  to 20 SMA.

20 SMA pullback from demand zone

The strategy of using a 20-period Simple Moving Average (SMA) to attract candles from a demand zone is a trend-following approach that seeks to identify potential buying opportunities. Here's how you can implement this strategy:

1. Identify Demand Zone: A demand zone is a price level where buying interest is expected to be significant, often characterized by a cluster of previous lows or a consolidation area. Traders typically look for areas where price previously found support.

2. Plot 20-period SMA: Calculate and plot the 20-period Simple Moving Average on your price chart. The SMA smooths out price data over the last 20 periods, providing a trend indication.

3. Wait for Price to Enter Demand Zone: Monitor the price movement until it enters the identified demand zone. This is the area where you anticipate buying interest to increase.

4. Look for Candles Attracted to SMA: Once the price reaches the demand zone, observe how price interacts with the 20-period SMA. You're looking for candles that approach or touch the SMA, indicating potential buying interest.

5. Confirmation: Look for additional confirmation signals such as bullish candlestick patterns, chart patterns, or indicators aligning with the potential reversal from the demand zone.

6. Entry: Once you observe candles being attracted to the 20-period SMA within the demand zone and confirming signals are in place, consider entering a long (buy) trade.

7. Stop Loss: Place a stop loss order below the recent swing low within the demand zone to protect your position in case the price continues to decline.

8. Take Profit: Set a target for taking profits. This could be based on a predetermined reward-to-risk ratio, key resistance levels, or the distance to the nearest significant resistance level.

9. Risk Management: Manage your risk appropriately by sizing your position so that potential losses are within your risk tolerance.

10. Monitor and Manage Trade: Continuously monitor the trade's progress and adjust your stop loss or take profit levels if necessary based on evolving market conditions.

As with any trading strategy, it's essential to combine technical analysis with risk management and disciplined decision-making. Additionally, back testing and practicing the strategy in a demo account can help validate its effectiveness before implementing it with real funds.