In our reversal trading, we use the 20 SMA; moving averages are a commonly used tool overall. That’s why you can often see the squeeze pattern around moving averages as well and a break and retest pattern at moving averages is a well-known pattern.
The price behavior follows the same patterns: after a market has topped (or bottomed), many traders will enter a trade once the moving average has been broken. Once price has pulled away just a little bit, traders move their stops to break-even and are then taken out on the retest.
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