Captures the inferred behaviour of traders and investors by using two groups of averages. Uses fractal repetition to identify points of agreement and disagreement which precede significant trend changes. Used to assess the degree and extent of trading activity. Excessive trading activity can destabilise strong trends. Trend analysis enables more effective selection of appropriate trading strategies such as breakout, trend continuation etc. Can be applied to long side and short side trading.
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Repeat the steps below for each of the required moving averages. Alter the N value to calculate the EMA you want. For example, use three to calculate the three-period average, and use 60 to calculate the period EMA.
Calculate the SMA for N. Calculate the Multiplier using the same N value. Repeat the process for the next N value, until you have the EMA reading for all 12 moving averages. The Guppy Multiple Moving Average can be used to identify changes in trends or gauge the strength of the current trend.
The degree of separation between the short- and long-term moving averages can be used as an indicator of trend strength. Narrow separation, or lines that are crisscrossings, indicates a weakening trend or a period of consolidation. The crossover of the short- and long-term moving averages represent trend reversals. If the short-term crosses above the long-term moving averages, then a bullish reversal has occurred. If the short-term MAs cross below the longer-term ones, then a bearish reversal is occurring.
When both groups of MAs are moving horizontally, or mostly moving sideways and heavily intertwined, it means the asset lacks a price trend, and therefore may not be a good candidate for trend trades. These periods may be good for range trading , though. The indicator can also be used for trade signals. When the short-term group passes above the long-term group of MAs, buy. When the short-term group passes below the longer-term group, sell.
These signals should be avoided when the price and the MAs are moving sideways. Following a consolidation period, watch for a crossover and separation. When the lines start to separate this often means a breakout from the consolidation has occurred and a new trend could be underway.
The same concept applies to downtrends for entering short trades. Traders should use the Guppy Multiple Moving Average in conjunction with other technical indicators to maximize their odds of success.
For example, traders might look at the Relative Strength Index RSI to confirm whether a trend is getting top-heavy and poised for a reversal , or look at various chart patterns to determine other entry or exit points after a GMMA crossover. The Guppy is a collection of EMAs that the creator believed helped isolate trades, spot opportunities, and warn about price reversals. The multiple lines of the Guppy help some traders see the strength or weakness in a trend better than if only using one or two EMAs.
Each EMA represents the average price from the past. It does not predict the future. Waiting for the averages to crossover can at times mean an entry or exit that is far too late, as the price has already moved aggressively. All moving averages are also prone to whipsaws. Compare Accounts.
Guppy Multiple Moving Average - GMMA