Guppy trading system
The short-term EMAs represent traders, or speculators, who are attempting to capture short-term profits. Guppy has suggested that this system could be programmed into your trading software by tracking the sum of the six short-term EMAs against the sum of the six long-term EMAs. Another application of the GMMA indicator is using it to analyze the strength of a current trend, or to target additional entry points within a trend.
This can be done by analyzing how the different EMAs interact with each other. Both the long-term and short-term trends are seen as stable when each of their EMA lines are separated by a uniform distance.
If the six long-term EMAs begin to flatten, the long-term trend has become vulnerable. If the short-term EMA lines begin to separate further and further from each other, the market is likely experiencing a bubble situation and traders should be cautious.
The GMMA Indicator
Notice how tight the long-term EMAs were trading with respect to each other in November and December of last year when the short-term lines crossed through them. This was the start of the new uptrend. Then, those long term EMAs expanded with respect to each other as the uptrend progressed.
The long term EMAs traded tighter again at the end of June, indicating weakness, but have since spread further apart. It is also interesting to note that at each of the relative highs and lows, the fastest short term EMAs opened bigger gaps over the slightly slower short term EMAs.
GMMA: The Guppy Indicator | New Trader U
This can be seen at the low point at the end of November, and at the relative high in the middle of May. After a few choppy weeks, the uptrend resumed at the beginning of July and would currently be holding a long position. Almost all of them would have resulted in profitable trades.
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The long position signaled in December would have retained most of its profits when it was sold in February. Then, a short position established at the end of February would have ended profitably at the end of April. The long position triggered in May would have been sold at close to break-even, but the short position signaled in June would have turned a profit when sold in July.
Home Sign In Contact Us. 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.
How to Easily Identify And Capture Market Trends Using Guppy
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.
The buy and sell signals above should be avoided when the price and the EMAs are moving sideways.
When compression of both groups of moving averages occurs on the same candlestick, this could indicate an overall trend change. 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.
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. A lagging indicator gives a signal after the trend has started.
Technical Classroom: How to use Guppy Multiple Moving Average to devise a trading strategy
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. 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 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.