What is The Guppy Multiple Moving Average (GMMA)?
It is the Guppy Multiple Moving Average (GMMA) is an indicators of technical nature which aims to predict an eventual rise in the value of an investment. The name comes in honor of Daryl Guppy, an Australian financial journalist and author who came up with the concept in his book “Trading Strategies.”
The GMMA utilizes its exponential moving average (EMA) to determine the gap between value and price in an investment. An increase in these variables can indicate a significant shift in the trend. Guppy claims his belief that GMMA does not function as a indicator of lagging, but an early warning sign of a possible shift in value and price.
Guppy Multiple Moving Average (GMMA) Formula and Calculation
The formula used to calculate the Guppy indicator is based on an exponentially moving average (EMA). There is a short-term set of MAs, and a long-term group of MAs, each comprising six MAs, making total 12. One can however insert your preferred amount of times, N, in the calculation to calculate all MA’s MA values.
EMAprevious]*M+EMApreviousor:SMA=NSum of N closing priceswhere:EMA=exponential moving averageEMAprevious=the exponential moving average from the previous period(The SMA can substitute for the EMAprevious for the first calculation)Multiplier M=N+12SMA=simple moving averageN=number of Calculating the GMMA
Repeat the steps to each one of your MAs. Change the N value to determine the EMA you’d like to calculate. For instance, you can utilize 3 to compute the average of three periods and 60 for the calculation of sixty-period EMA.
- Find your SMA for N.
- Find the multiplier by using the same value.
- Make use of latest close price as well as the multiplier and SMA to determine the EMA. The SMA is put on the EMA previous day spot during the calculation. After the EMA has been calculated the SMA is no longer required because the EMA calculation is applied to the EMA previous day spot in the following calculation.
- Repeat this process for each N value, and continue until you are able to get an EMA measurement for each of the 12 MAs.
What Can The GMMA What Does the GMMA Tell You?
The amount of distance between the short and long-term MAs could be used as a measure of the trend’s strength. If there is a large separation, then the current trend is very strong. The narrower separation or lines that cross however suggests a weakening trend or a time that is in consolidating.
The crossing of the long- and short-term MAs are a sign of the reversal of trends. If the short-term cross-sections above the longer-term MAs that means there is a bullish reverse has taken place. In contrast, if the short-term MAs surpass those of the longer-term, an inverse bearish trend is taking place.
In contrast, if each group of MAs move horizontally or mostly going sideways, and tightly intertwined in this way, it indicates that the asset does not have a price trend, and thus might not be a great option for trend trades. These times could be suitable for trading in the range but.
The indicator could also be used to provide trading signals. If the short-term group is above the longer-term group of MAs purchase. If the short-term market is below the longer-term group sell. This is a signal to avoid in the event that the price and MAs are moving in a downward direction. After a consolidation be on the lookout for a crossing and separation. If lines begin to split, this usually indicates that a break of the consolidation has taken place as well as a trend change may be in the making.
In a high-frequency uptrend when the short-term MAs shift back toward those of the longer-term MAs (but they don’t cross) and then begin moving back towards the upward direction it is a good time to enter lengthy trades that are trending in the direction. The same principle applies to downtrends, allowing you to enter the short trades.
It is the Guppy Multiple Moving Average (GMMA) is different from. the Exponential Moving Average (EMA)
The GMMA is comprised of 12 EMAs. Therefore, it’s basically the same idea in the sense of an EMA. Guppy Guppy is a group of EMAs, which were believed by the creator to help isolate trading opportunities, spot opportunities and warn of price reverses.
The many patterns of the Guppy can help traders to see whether there is strength or weakness of the trend more clearly than just using one or two EMAs.
GMMA’s Limitations GMMA
The biggest drawback of the Guppy and the EMAs that it is made up of is it’s an slow-moving indicator. Each EMA is the average price of the past. It doesn’t provide a forecast for the future.
In the meantime, waiting for the averages to cross over could sometimes lead to an exit or entry that is way too late, since the price is already moving rapidly. The MAs can also be susceptible to whipsaws. This happens when there is the possibility of a crossover in a trade, however the price does not move in the direction expected, and then the averages again cross, and result in the loss.
The traders should use the GMMA along with other technical indicators in order to maximize the chances of success. For instance, traders may take a look at an indicator like the relative strength indicator (RSI) in order to verify the trend is becoming high-heavy and is poised for turn around, or study different chart patterns to identify the other points of entry and exit following the GMMA crossing.
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