Candles moving downwards from a supply zone to 20 SMA, with 200 SMA within or near the supply zone

In the below BTC/USD daily chart we can see a supply zone rally base drop, and when the candles approached the supply zone, there was an instant bounce downwards from the 200-period Simple Moving Average (SMA) - candles moved towards 20 SMA.

Candlesticks moving downwards to 20 SMA from 200 SMA near a supply zone

Candles can bounce downwards from the 200-period Simple Moving Average (within or near a supply zone) to the 20-period SMA, it's a bearish reversal pattern. Here's how you can approach this strategy:

1. Identify Supply Zone: Locate a supply zone on your price chart. This area represents a region where selling pressure is expected to be strong.

2. Plot 200-period SMA and 20-period SMA: Calculate and plot both the 200-period SMA and the 20-period SMA on your price chart. The 200 SMA acts as a long-term trend indicator, while the 20 SMA provides a shorter-term trend perspective.

3. Wait for Price to Enter Supply Zone: Monitor the price movement until it enters the identified supply zone.

4. Look for Price Reaching 200 SMA: Once the price reaches the supply zone, observe how it interacts with the 200-period SMA. Look for the price approaching or touching the 200 SMA within the supply zone.

5. Observe Bounce from 200 SMA Towards 20 SMA: After the price touches or approaches the 200 SMA within the supply zone, observe for signs of a bounce downwards towards the 20-period SMA.

6. Confirmation: Seek additional confirmation signals such as bearish candlestick patterns, bearish chart patterns, or other technical indicators aligning with the bounce from the 200 SMA towards the 20 SMA within the supply zone.

7. Entry: After observing the bounce from the 200 SMA towards the 20 SMA and confirming signals are present, consider entering a short trade.

8. Stop Loss: Place a stop loss order above the recent swing high within the supply zone to manage risk in case the price doesn't hold below the 200 SMA or the 20 SMA.

9. Take Profit: Set a target for taking profits. This could be based on a predetermined risk-reward ratio, key support levels, or other technical factors indicating potential profit-taking levels.

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

11. Monitor and Manage Trade: Continuously monitor the trade's progress and consider adjusting your stop loss or take profit levels based on evolving market conditions.

As always, it's crucial to combine technical analysis with risk management and disciplined trading practices. Additionally, back testing this strategy and practicing it in a demo account can help validate its effectiveness before using it with real capital.