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How to Trade Multiple Moving Averages (GMMA Forex & CFD Stock Guppy Trading Strategy) - YouTube
Channel: The Secret Mindset
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Guppy multiple moving average (GMMA) indicator
provides an interesting alternative to other
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popular indicators.
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The GMMA implements 2 different exponential
moving averages (EMAs) in an effort to analyze
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market behavior on multiple levels.
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The Guppy indicator is composed of 12 EMAs,
so essentially the Guppy and an EMA are the
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same thing.
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Guppy will help you to isolate trades, spot
opportunities, and warn about price reversals.
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The multiple lines of the Guppy will help
you to see the strength or weakness in a trend
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better than if only using one or two EMAs.
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The Guppy multiple moving average (GMMA) is
an indicator that tracks the activity of the
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two major groups in the market.
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These are investors and traders.
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Traders are always probing for a change in
the trend.
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In a downtrend they will take a trade in anticipation
of a new uptrend developing.
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If it does not develop, then they get out
of the trade quickly.
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If the trend does change, then they stay with
the trade, but continue to use a short term
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management approach.
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No matter how long the uptrend remains in
place, the trader is always alert for a potential
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trend change.
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Often they use a volatility based indicator,
or a short term 10 day moving average, to
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help identify the exit conditions.
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We track their activity by using a group of
short term moving averages.
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These are 3, 5, 8, 10, 12 and 15 day exponentially
calculated moving averages.
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Strong trends are supported by long term investors.
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These are the true gamblers in the market
because they tend to have a great deal of
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faith in their analysis.
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The investor takes more time to recognize
the change in a trend.
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We track the investors’ activity by using
the 30, 35, 40, 45, 50 and 60 day exponentially
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calculated moving average.
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So the GMMA attempts to identify trends by
combining two groups of moving averages with
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different time periods.
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The long-term EMAs (exponential moving average)
represent the interests and behaviors of investors
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that have taken a long-term approach to a
given market.
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The short-term EMAs represent traders, or
speculators, who are attempting to capture
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short-term profits.
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The relationship within each of these groups
tells us when there is agreement on value
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- when they are close together - and when
there is disagreement on value - when they
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are well spaced apart.
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The relationship between the two groups tells
the trader about the strength of the market
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action.
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A change in price direction that is well supported
by both short and long term investors signals
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a strong trading opportunity.
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Guppy is an easy indicator that will allow
anyone to determine the overall trend of the
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market quickly and without personal bias.
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And of course, once you know the general direction
of a trending market, the odds of a successful
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trade increase.
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The GMMA also offers insight into potential
reversals or periods of consolidation by signaling
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changes in market sentiment.
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Although Guppy is a standalone trading strategy,
I have found great results combining Guppy
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with price action, but we’ll talk about
this later.
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So, how to read the GMMA?
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The Guppy multiple moving average can be used
to identify changes in trends or determine
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the strength of the current trend.
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The degree of separation between the short-
and long-term moving averages can be used
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as an indicator of trend strength.
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If there's a wide separation, then the prevailing
trend is strong.
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Narrow separation, or lines that are crisscrossing,
indicates a weakening trend or a period of
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consolidation.
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The crossover of the short- and long-term
moving averages represent trend reversals.
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If the short-term crosses above the long-term
moving averages, then a bullish reversal has
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occurred.
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If the short-term mas cross below the longer-term
ones, then a bearish reversal is occurring.
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When both groups of mas are moving horizontally,
or mostly moving sideways and heavily intersected,
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it means the asset lacks a price trend, and
therefore may not be a good candidate for
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trend trades.
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These periods may be good for range trading.
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The indicator can also be used for trade signals.
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When the short-term group passes above the
long-term group of mas, the market is bullish.
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When the short-term group passes below the
longer-term group, the market is bearish.
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These signals should be avoided when the price
and the mas are moving sideways.
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Following a consolidation period, pay attention
at crossovers and separation.
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When the lines start to separate this often
means a breakout from the consolidation has
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occurred and a new trend could be underway.
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During a strong uptrend, when the short-term
mas move back toward the longer-term mas (but
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don't cross) and then start to move back the
upside, this is another opportunity to enter
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into long trades in the trending direction.
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The same concept applies to downtrends for
entering short trades.
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The green moving averages represent short-term
traders and red represents long-term traders.
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When both the red and green lines are moving
in agreement (both trending up or down), we
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are given a confirmation of market sentiment
and trend.
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The moving averages may also act as support
and/or resistance.
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When price finds support at these levels,
it might be a good time to add positions if
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you see further upside potential or you have
spare risk capital available.
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When price tests the red moving average zone,
long-term traders will look to buy more given
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their outlook is still bullish.
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The strength of the trend is determined by
the distance between the red and green moving
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average clusters.
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The further the distance, the greater the
trend.
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Another way to evaluate the strength of a
trend is to evaluate the spread between each
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moving average cluster.
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If the long-term red averages are spread out
nicely, this indicates that the support/resistance
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level is broad and strong.
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If the lines within a cluster are narrowing,
this indicates momentum is declining, and
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a reversal or consolidation could follow.
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Just like simple moving averages, you can
use crossovers as entry and exit signals.
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When the short-term moving average cluster
crosses over the long-term, this signals a
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change in market sentiment and suggest that
short-term traders are starting a new trend.
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For instance, this Guppy crossover indicates
that short-term traders have become optimistic
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about this pair and could potentially start
a new bullish trend.
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The strength of the trend is determined by
the distance between the red and green moving
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average clusters.
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Like I said before, the farther the distance,
the greater the trend.
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Now, if you followed my previous videos on
moving averages, you probably know that I’m
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not the biggest fan of moving average crossovers.
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Since the GMMA indicator was designed for
trending assets; these moving averages run
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into problems when price consolidates.
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The indicator shows consolidation and potential
reversals when the short and long-term moving
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averages condense.
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The main limitation of the Guppy indicator
is the lagging factor.
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Each EMA represents the average price from
the past.
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It does not predict the future.
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Waiting for the averages to cross can at times
mean an entry or exit that is far too late,
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as the price has already moved aggressively.
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All moving averages are also prone to whipsaws.
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This is when there is a crossover, potentially
resulting in a trade, but the price doesn't
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move as expected and then the averages cross
again resulting in a loss.
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So, in times of consolidation, with multiple
crossovers, i find it useful to combine price
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action with GMMA.
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You could also use the Guppy multiple moving
average in conjunction with other technical
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indicators to maximize your trading odds.
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For example, you might look at the relative
strength index (RSI) to confirm a trend, or
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look at various chart patterns to determine
other entry or exit points after a GMMA crossover.
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From my experience, the GMMA is also useful
from breakout trading, when the price is moving
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outside a defined support or resistance level
with increased volume.
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A breakout trader enters a long position after
the price breaks above resistance or enters
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a short position after the price breaks below
support.
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The reason breakouts are such an important
trading strategy is because these setups are
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the starting point for future volatility increases,
large price swings and, in many circumstances,
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major price trends.
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Breakouts occur in all types of market environments.
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Typically, the most explosive price movements
are a result of channel breakouts and price
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pattern breakout.
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So when there is lots of separation between
the GMMAs, this helps confirm the price trend
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in the current direction.
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Look for agreement between the short term
and long term moving averages and pay attention
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to chart formations such as channels, triangles,
and flags.
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Whether you use intraday, daily or weekly
charts, the concepts are universal.
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You can apply this strategy to day trading,
swing trading or any style of trading.
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Once you spot a clear trade setup in your
desired time frame, remember to set the stop
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loss just above or below short term moving
averages.
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Or, if you want more room, decrease your lot
sizes and place it below or above the longer
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term moving averages.
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Although a simple indicator, the GMMA can
offer valuable insight to any momentum or
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swing trader.
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Guppy is a standalone trading strategy; however,
i have found the greatest returns when combining
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Guppy with price action, because price action
addresses periods of consolidation, where
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Guppy tends to underperform.
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So always try to maximize your chances of
a great trade by confirming your bias with
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other tools.
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If you learned something new and found value,
leave us a like to show your support and don’t
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Until next time.
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