As a technical indicator that detects shifts in trends, the Guppy Multiple Moving Average Forex Trading (GMMA Forex Trading), commonly referred to as just “Guppy,” gives you an unbiased way to choose when to enter and exit a trade.
Defining the Guppy Multiple Moving Average (GMMA Forex Trading) Indicator
Daryl Guppy, an Australian trader, came up with the GMMA Forex Trading, thus the indicator’s name. Two applications for the Guppy Multiple Moving Average are gauging the strength of the present trend or spotting shifts in trend direction.
The secret to successful trend trading is to exit the market as soon as the trend reverses, in addition to correctly spotting the trend’s direction and following it once it has begun.
When facing difficulty with the tactic above, the GMMA indicator can be a useful asset.
The indicator is comprised of 12 total EMAs (exponential moving averages):
Traders can observe a trend’s strength or weakness more clearly using the Guppy’s many lines. Two groups are created out of the 12 EMAs:
- An EMA “short-term” group
- An EMA “long-term” group.
Each group includes six EMAs.
The two EMA groups are distinguished from one another in the above chart by color. The “long-term” group is red, and the “short-term” group is blue.
The short-term EMAs provide signals, whereas the long-term EMAs establish the trend.
It is best to enter a trade when one group crosses over the other, that’s what signifies a trend reversal:
- You should buy when the longer-term group crosses above the short-term group.
- You should Sell when the short-term group crosses below the long-term group.
How Does the GMMA Indicator Work
Determine the Strength of a Trend
One measure of the Trend strength is the distance between the short and long-term moving averages.
A wide divergence suggests that there is a strong dominating trend. Whereas, a weakening trend or a phase of consolidation is indicated by a narrow separation or overlapping lines.
Spot Trend Reversals
Trend reversals are indicated by the crossover of the long and short-term moving averages.
A bullish crossover occurs when the short-term moving averages cross ABOVE the long-term moving averages, signifying the completion of a bullish reversal.
A bearish crossover, or bearish reversal, is indicated when the short-term moving averages cross BELOW the longer-term ones.
Identify Negative Trends
The long-term trend and short-term market mood are often in agreement when the moving averages of the two groups are almost parallel and close to each other. The absence of a trend in the price is indicated when both sets of EMAs are moving horizontally, or mostly sideways and strongly entwined.
In the chart above, you can see that the price is only going up and down inside a range when the red and blue set of EMAs are entwined.
Range trading would be more appropriate with the present price movement. It would be wise for a trend trader to hold off and wait for more favorable circumstances.
How to Use the Guppy Multiple Moving Average for Forex Trading
Buy Signals
Buy signals are spotted in the following settings:
- When all short-term MAs cross above all the long-term ones, a fresh bullish trend is validated generating a buy signal.
- A buy signal is created when the short-term MAs in a strong uptrend reverses toward the longer-term MAs without crossing them then begin to rise again, this indicates that the bullish trend is likely to continue.
- Lastly, following a crossing, if prices retreat and then rise above the longer-term MAs, this indicates that the bullish trend is still in place which generates a buy signal.
Sell Signals
Sell signals are identified in the following circumstances:
- A sell signal is generated and a new negative trend is indicated when all short-term MAs cross below all the ones.
- A sell signal is created during a severe downturn when the short-term MAs fall lower and then move back toward the longer-term MAs without crossing. This indicates that the negative trend is continuing.
- Finally, a bearish crossing indicates a continuation of the negative trend and sets off a sell signal if the price rises but then bounces off the long-term EMAs.
Absence of Signals
When both the price and the EMAs are going sideways, it is best to ignore the buy and sell indications mentioned above. Wait for a crossing and separation after a period of consolidation. This indicator is not useful if there is no trend.
Additional GMMA Trading Tips
- Trade in line with the EMA’s long-term group.
- Long-term trend strength is determined by the type and degree of separation within the long-term group of EMAs.
- The short-term market mood is determined by the type and degree of separation in the short-term group of EMAs.
- The general trend and market sentiment are aligned when both groups are heading in the same direction, either up or down.
- A simultaneous compression of both groups suggests that the trend may be shifting.
