How to trend trade with guppy multiple moving average

How to Trend Trade with Guppy Multiple Moving Average GMMA The Guppy Multiple Moving Average GMMA indicator provides an interesting approach using moving average ribbons.. The Guppy Mul

How to Trend Trade with Guppy

Multiple Moving Average (GMMA)

The Guppy Multiple Moving Average (GMMA) indicator provides

an interesting approach using moving average ribbons

As a trend trader, it’s not enough to just identify the direction of a

trend and catch the trend

Trend trading success depends not only properly identifying the

trend direction and catching the trend after it has started, but

also on getting out as soon as possible after the trend has

reversed

If you find yourself struggling with any of the above, you might want

to take a look at the Guppy Multiple Moving Average indicator.

The Guppy Multiple Moving Average (GMMA), also known simply known as”Guppy“, is a technical indicator that identifies changes

in trends, which means it provides you with an objective method to

know when to get in and when to get out of a trade.

On a chart, it looks like this…

The Guppy was created by an Australian trader named Daryl

Guppy Hence, the name of the indicator.

Don’t confuse “Guppy”, the indicator, with “Guppy”, the nickname for the

GBP/JPY They are two different things This means that you can trade

the Guppy (currency pair) using the Guppy (indicator) 😂

Daryl introduced GMMA in his book, Trend Trading“.

The Guppy is a trend-following technique composed of 12

EMAs (or exponential moving averages).

The multiple lines of the Guppy help traders see the strength or

weakness in a trend better than if only using one (or two) EMAs.

The 12 EMAs are separated into two groups:

1 A “short-term” group of EMAs.

2 A “long-term” group of EMAs.

Each group contains six MAs.

In the chart above, the two groups of EMA are differentiated

by color.

The “short-term” group is blue, while the “long-term” group is red The trend is determined by the long-term EMAs, signals are given

by the short-term EMAs

You would enter a trade when a trend reversal occurs, which is

indicated when one group crosses over the other group.

When the short-term group crosses ABOVE the longer-term group,

BUY

When the short-term group crosses BELOW the longer-term

group, SELL

How to Set Up the Guppy Multiple Moving Average

This technique consists of combining TWO groups of exponential

moving averages (EMAs) with differing time periods (or lengths).

The twelve periods used are 3, 5, 8, 10, 12, 15, 30, 35, 40, 45, 50, and 60.

The 3, 5, 8, 10, 12, and 15 EMAs are used to show the short-term

trend’s momentum.

The 30, 35, 40, 45, 50, and 60 EMAs how the longer-term trend’s

momentum.

Now, let’s show both groups of EMAs on the chart.

Trend reversals and continuations can be identified with these

two groups of EMAs

How to Use the Guppy Multiple

Moving Average

The Guppy Multiple Moving Average can be used to identify

changes in trend direction or gauge the strength of the current

trend.

How to Identify Trend Strength

The degree of separation between the short- and long-term

moving averages can be used as an indicator of trend strength.

If there’s a WIDE separation, this indicates that the prevailing

trend is strong.

If there’s a NARROW separation or lines that intertwine, this

indicates a weakening trend or a period of consolidation.

How to Identify Trend Reversals

The crossover of the short- and long-term moving

averages represent trend reversals.

If the short-term EMAs cross ABOVE the long-term moving

averages, this is known as a bullish crossover, and indicates that

a bullish reversal has occurred.

If the short-term EMAs cross BELOW the longer-term ones, this is

known as a bearish crossover, and indicates that a bearish

reversal is occurring.

How to Identify a Lack of Tend

When the moving averages between the two groups are close together and approximately parallel, it indicates that the

short-term market sentiment and long-short-term trend are largely in

agreement.

Basically, when both groups of EMAs are moving horizontally, or mostly moving sideways and heavily intertwined, it means the price lacks a trend.

Looking at the chart above, notice how when the red and blue

group of EMAs are intertwined, price is directionless, simply moving

up and down within a range

This current price action is more suitable for range trading As a

trend trader, it would make sense to sit out and wait for better

conditions

Just remember this phrase, “When the market is sideways, trend traders sit on the sidelines.”

How to Trade Currencies with the

Guppy Multiple Moving Average

The GMMA indicator can be used for trade signals

Buy Signals

When all short-term EMA cross above all the long-term EMAs, a new bullish trend is confirmed and triggers a buy signal

During a strong uptrend, when the short-term MAs move back toward the longer-term MAs, but do NOT cross, and then start to move back higher, this signals another continuation of the bullish trend and triggers a buy signal

Also, after a crossover, if prices fall back and then bounces off

from the longer-term EMAs, this signals a continuation of the

bullish trend and triggers a buy signal

Sell Signals

When all short-term EMAs cross below all the long-term EMA, this indicates a new bearish trend and triggers a sell signal

During a strong downtrend, when the short-term MAs move back toward the longer-term MAs, but do NOT cross, and then start to move lower, this signals a continuation of the bearish trend and triggers a sell signal

Also, after a bearish crossover, if the price rises but then bounce

off from the long-term EMAs, this signals a continuation of the

bearish trend, and triggers a sell signal

No Signal

The buy and sell signals above should be avoided when the price

and the EMAs are moving sideways.

Following a consolidation period, wait for a crossover and

separation.

If there is no trend, this indicator will not work.

GMMA Compression Breakout Strategy

The moving averages also act as support and resistance levels.

When compression of both groups of moving averages occurs on the same candlestick, this could indicate an overall trend change.

Here’s the trade setup:

 Look for a candlestick in which the high and low pierce

through all twelve moving averages

 Place a buy stop order above the high and sell stop order below the low of the candlestick

 Once filled, make the opposite stop order (that wasn’t filled) your initial stop-loss level

 Trail your stop at the prior candlestick’s low (if long) or high (if short) until stopped out of the position

Here’s an example:

In the chart above, both groups of EMAs have become tightly

compressed Notice how the last candle opened below all moving averages and managed to close above all moving averages.

This can be interpreted as the price being able to close above a resistance level (the compressed EMAs)

Set a buy stop order above the candle’s high and a sell stop order below the low

In the next candle, the price rises which triggers the buy stop order The previous sell stop order now becomes your initial stop loss

Price continues to rise Whenever a candle makes a new higher low, you can trail your stop loss and use this as the new stop loss, until you get stopped out

Limitations of the Guppy Multiple

Moving Average (GMMA)

The main limitation of the Guppy is that is a lagging indicator.

This is because the Guppy consists of exponential moving

averages (EMAs), and we’ve mentioned in a previous lesson, EMAs are lagging indicators

A lagging indicator gives a signal after the trend has started.

This means that waiting for the EMAs to cross over can sometimes

result in an entry or exit that is too late, as the price has already

moved significantly

With any trend-following indicator, you’re always going to end up getting into a trade AFTER the trend has already started, and end

up getting out of a trade AFTER the trend has already ended

That’s why it’s called a trend-FOLLOWING indicator You don’t try

to predict when a trend will start, you wait for it to form first, and then you simply follow it

Also, all moving averages are also prone to whipsaws.

A whipsaw occurs where there is a crossover, which signals an entry, but instead of price moving in the expected direction, it

moves backs in the opposite direction, causing the EMAs to cross again, which signals an exit (and realized loss)

The Guppy Multiple Moving Average is a trend-following system.

Trading with the trend helps you win more than lose.

The Guppy can help you visualize both scenarios of either a trend

reversal or a trend continuation.

Although a simple indicator, the Guppy system only works best

when the price is in a clear trend.

There is no technical indicator that is right all the time (If you find one, please let us know.)

Here are some tips for trading the Guppy:

 Trade in the direction of the long-term group of EMA.

 The degree and nature of separation in the long-term group of

EMAs define long-term trend strength.

 The degree and nature of separation in the short- term group

of EMAs define the short-term market sentiment

 When both groups are moving in the same direction (both

trending up or down), current market sentiment and the

overall trend are in agreement.

 A compression of both groups at the same time indicates

the potential for a trend change.