My Simple Edge
ETH had been consolidating for three days. At 8:00 AM, the 4-hour candle closed with price breaking above the 9 SMA High. The daily trend was up, all SMAs were stacked bullishly, and price was holding above the 20 SMA. I sized up. Six candles later, price had run 4.2%. I exited when price returned to the 9 SMA High with a 2.8R winner.
That trade wasn't luck. It wasn't a guess. It was a setup I've taken dozens of times over the last six months. I know its average winner, and exactly when to pass on it.
This is my edge. This is the trade I take more of.
Why This Setup Exists in My Playbook
Most traders overcomplicate entries. They stack indicators until the chart looks like a Christmas tree, then freeze when signals conflict. I went the opposite direction.
The SMA Breakout uses four simple moving averages on the 4-hour chart: the 9 SMA High (resistance), 9 SMA Low (support), 9 SMA Close (trend bias reference), and 20 SMA Close. The daily chart establishes my directional bias. I only take longs when the daily is trending up and shorts when the daily is trending down.
The edge isn't in the indicators. It's in the discipline to only trade in the direction of the higher timeframe, size appropriately based on setup quality, and exit without emotion.
The Big Picture: When I Trade This
Before I look at any signal, I assess the environment. This is a trend-following breakout strategy. It performs best when markets are directional and fails in choppy, sideways conditions.
I take this trade when:
- The daily chart shows a clear trend (higher highs/higher lows for longs, lower highs/lower lows for shorts)
- Volatility is present but not extreme (no major news events imminent)
- The 4H setup aligns with daily trend direction
- Price has broken out of the range with a confirmed candle close
I pass when:
- Price is ranging between the 9 SMA High and 9 SMA Low
- Major macro events (FOMC, CPI, employment data) are within 24 hours
- The 4H signal would put me counter to the daily trend
The breakout is the trigger. The daily trend is the filter.
Technical Analysis: The Setup
Indicators
| Indicator | Color | Purpose |
|---|---|---|
| 9 SMA High | Red | Resistance level |
| 9 SMA Low | Green | Support level |
| 9 SMA Close | Blue | Trend bias (similar to Bollinger Band middle line) |
| 20 SMA Close | Orange | Trend filter |
Identifying a Range
When price is trading between the 9 SMA High (Red) and the 9 SMA Low (Green), the market is ranging. I don't take trades in a range—there's no edge in chop. I wait for price to break out of the range with a confirmed candle close, either above the 9 SMA High for longs or below the 9 SMA Low for shorts.
Long Setup
Conditions:
- Daily chart confirms uptrend
- All SMAs are stacked bullishly
- Price is trading above the 20 SMA (Orange)
Entry: Candle closes above the 9 SMA High (Red)
Exit: Candle closes below the 9 SMA High (Red)
Why This Exit Works: When a candle closes below the 9 SMA High (Red), this almost always marks the high pivot point, signaling the beginning of a move toward a new low. This can be confirmed using pivot indicators on TradingView.
Trend Reversal Signal
When price closes below the 20 SMA (Orange), this indicates a potential trend reversal. This shift typically marks the transition from a high pivot to a low pivot, signaling that bullish momentum has exhausted and bearish price action is likely to follow. This is my cue to stop looking for longs and begin watching for short setups.
Short Setup
Conditions:
- Daily chart confirms downtrend
- Price has closed below the 20 SMA (Orange), confirming the high-to-low pivot shift
Entry: Candle closes below the 9 SMA Low (Green)
Exit: Candle closes above the 9 SMA Low (Green)
Why This Exit Works: When a candle closes above the 9 SMA Low (Green), this almost always marks the low pivot point, signaling a reversal. This can be confirmed using pivot indicators on TradingView.
The Rule That Saves Me: No mid-candle entries. Ever. The urge to jump in early has cost me more than any losing trade. I wait for confirmation.
Trade Management: How I Stay Alive
Position sizing and risk management are where most traders blow up. I've built my rules to survive losing streaks while capitalizing on winning runs.
Risk Per Trade
- Standard setup: 1R (my base risk unit)
- A+ setup (daily trend alignment + clean structure + volume confirmation): Up to 2R
Position Rules
- One position at a time
- No averaging down
- If stopped out, wait for a new valid setup before re-entering
Exit Framework
For Longs:
- If candle closes below the 9 SMA High (Red) → Exit full position
- If trade reaches 3R → Consider taking partial profits (50%)
For Shorts:
- If candle closes above the 9 SMA Low (Green) → Exit full position
- If trade reaches 3R → Consider taking partial profits (50%)
Grading My Setups: A+ vs. B vs. Pass
Not all breakouts are created equal. I grade each setup before entering.
A+ Setup (Size Up)
- Daily trend strongly aligned
- SMAs cleanly stacked in trade direction
- Breakout occurs after a clean pullback (not extended)
- Volume confirms the move
- No major resistance/support immediately ahead
B Setup (Standard Size)
- Signal is valid but one element is missing
- Daily trend neutral or unclear
- SMA stack not perfectly aligned
Pass (No Trade)
- Counter-trend on daily
- Price is ranging between the 9 SMA High and 9 SMA Low
- Major news within 24 hours
- Price extended far from the 20 SMA
- Just got stopped out (waiting for new setup)
The discipline to pass is what separates consistent traders from gamblers.
Trade Example: ETH Long
The Setup
- Daily: Clear uptrend, higher highs and higher lows over the prior two weeks
- 4H: Three-day consolidation with price holding above the 20 SMA (Orange)
- SMA Stack: All SMAs aligned bullishly—price above all four
- Catalyst: None specific, but crypto sentiment was neutral-to-bullish
The Signal
At 8:00 AM EST, the 4H candle closed with price breaking above the 9 SMA High (Red). This was my trigger.
Grading: A+ Setup
- Daily trend aligned ✓
- All SMAs stacked bullishly ✓
- Price above 20 SMA ✓
- No major resistance immediately above ✓
- Volume was average (not exceptional, but acceptable) ✓
Execution
- Entry: Market order on candle close above 9 SMA High
- Position Size: 2R (A+ setup, sized up from standard)
- Exit Reference: 9 SMA High (Red)
The Trade
Price moved immediately in my favor. Over the next 24 hours (six 4H candles), ETH climbed 4.2%. At the seventh candle, price wicked toward the 9 SMA High but closed above it—I held.
On the eighth candle, price closed below the 9 SMA High. I exited.
Result
- Gain: +2.8%
- R Multiple: +2.8R
What I Learned
The wick toward the 9 SMA High on candle seven tested my discipline. I was tempted to exit early and lock in profits. But my rules are clear: exit when the candle closes below the 9 SMA High, not on wicks. Following the rule gave me an extra 1.3% on that trade.
The Psychology: What This Strategy Demands
Every strategy has a psychological cost. The SMA Breakout demands patience and discipline over prediction and excitement.
What I struggle with:
- Watching price move without me when I've passed on a setup
- Not adding to winners when momentum is strong
- Staying patient between setups
What I've gotten good at:
- Trusting the process over individual outcomes
- Keeping position size consistent
- Reviewing trades without emotional attachment
The strategy is simple. The execution is not. That's where the real edge lives.
What I Would Tell My Past Self
If I could go back to when I started trading this strategy, I'd say:
Track everything from day one. I lost months of data because I thought I'd remember my trades. I didn't. The journal is everything.
The pass is as important as the entry. My best months came when I took fewer trades, not more.
Let the daily chart be your guide. Fighting the higher timeframe trend is a losing game. Align with it or sit out.
Don't trade the range. When price is stuck between the 9 SMA High and Low, there's no edge. Wait for the breakout.
Simple beats clever. I spent a year adding filters and indicators. The original setup outperformed every "improved" version.
The Bottom Line
The SMA Breakout isn't complicated. It requires four moving averages, a clear daily trend, and the patience to wait for price to break out of the range—above the 9 SMA High for longs or below the 9 SMA Low for shorts.
It doesn't work in every market condition—which is why I pass more than I trade. But when the daily trend aligns, the SMAs are stacked, and price breaks out with confirmation, the setup delivers.
My edge isn't secret knowledge or proprietary indicators. It's doing the boring work—tracking every trade, grading setups honestly, avoiding the range, only trading in the direction of the daily trend, and trusting a process that's been validated over time.
That's the SMA Breakout. That's my edge.