What Is the Guppy Multiple Moving Average?
Australian trader Daryl Guppy looked to qualify the disparate impacts of traders and investors on the market and, in 1989, he introduced the Guppy multiple moving average indicator (GMMA).
How to Setup the Guppy Multiple Moving Average
This technique consists of combining two groups of moving averages with differing time periods. The first group has EMA for the prior 3, 5, 8, 10, 12 and 15 trading days and is indicative of the short-term trader activites. The other group contains six longer duration moving averages (30, 35, 40, 45, 50 and 60 days) and is applied to represent longer-term investor performace.
The idea is to use this system to find out whether the bulls or the bears are in charge of the market. Reversals, continuations and extremes can all be defined with these two bundles of indicators. Trend is determined by the longer term EMA, signals are given by the shorter term EMA.
The Guppy Multiple Moving Average (GMMA) is a technical indicator that identifies changing trends, breakouts, and trading opportunities in the price of an asset by combining two groups of moving averages (MA) with different time periods.
How to trade Binary Options with Guppy system
Call signals: Once short term EMA all chart above the long term EMA, a new bullish trend is confirmed forming and calls can be taken. Also, after a crossover, when prices fall back and then bounce off from the longer term moving averages it signals a continuation of the bullish trend and calls can be taken.
Put signals: Once short term EMA all cross below the long term EMA, it is a signal for a new bearish trend and puts can be taken. Also, after a crossover, when prices rally and then bounce off from the longer EMA it signals a continuation of the bearish trend, we can enter put orders.
When the moving averages between the two groups are close together and approximately parallel, it indicates that traders and investors are largely in agreement. These circumstances present fewer trading opportunities.
If you like this strategy, you might also be interested in this Darvas Box Strategy
The pros and cons of using the GMMA strategy
The Guppy Multiple Moving Average is one of the best indicators which enable us to soonly determine the market conditions.
Binary options traders may find this strategy difficult to use due to lots of signals generated by the EMA lines. Moreover, the fact that this system is only composed by trending indicators (EMA) makes us hard to grab trading signals when the market is consolidating. It is better if we combine the system with another oscillating indicator such as Relative Strength Index (RSI) or Commodity Channel Index (CCI) to find signals.
The Guppy Multiple Moving Average is a trend-trading system. Sticking to the market trends always helps traders win more than lose. But as we have known, there’s no indicator being right all the time, even the most well-developed ones. No exception. As mentioned above, this Guppy system only works best if it’s combined with an oscillating indicator. Applying the GMMA indicator with higher time frames also helps traders get more reliable trading signals. Besides, traders must have prior knowledge of reading charts and technical analysis, especially price action to use this technique flexibly.