You may have heard a lot about the moving averages, as they are supposed to be the most famous technical indicator in the forex arena. However, Guppy Multi Moving Average is slightly different from the traditional moving average. Let’s find out how it can be advantageous in your trading.
What is Guppy Multi Moving Averages (GMMA)?
The GMMA indicator is comprised of 12 exponential moving averages. Technically, it is the same as using conventional EMAs. However, Guppies are arranged to filter the bad trades and find opportunities in key trend reversals.
Multiple EMAs help traders in finding the strengths or weaknesses of an asset. It is like confirming the directional bias with different EMAs instead of one to increase the odds of success. GMMA can also be applied to find whether the current market is in a corrective or trending phase.
You can choose the color of the GMMA lines from the settings.
How to trade Guppy Multi Moving Averages (GMMA)?
The GMMA indicator can help you in finding trading opportunities. You can look for long opportunities when the short-term EMAs break above the long-term EMAs. Similarly, you can look for short opportunities when the short-term EMAs break below the long-term EMAs.
The market is considered consolidating when the lines are flat and stick to each other. In such a scenario, you should avoid taking any position. Therefore, you may have to wait until the lines start separating.
You may also look for long opportunities when the market is in a strong uptrend and the short-term EMAs slide towards the long-term EMAs but refrain from crossing and starting tilting higher. A similar concept can be applied when the downtrends start.
Buy Signal
Here’s a brief on using the GMMA in long setups:
- You should wait for the lines to change direction.
- Let the price form a bullish candle.
- You could enter the long position when the candle closes.
- You could place the stop-loss below the low of the entry candle.
- You could place the take profit twice the distance of your stop-loss.
- Alternatively, you could exit in profit when the lines change their direction.
Sell Signal
Here’s a brief on using the GMMA in short setups:
- You should wait for the lines to change direction.
- Let the price form a bearish candle.
- You could enter the short position when the candle closes.
- You could place the stop-loss above the high of the entry candle.
- You could place the take profit twice the distance of your stop-loss.
- Alternatively, you could exit in profit when the lines change their direction.
Conclusion
GMMA indicator may provide an edge over normal moving averages. You can filter the bad trades using GMMA instead of using it as a main strategy. Since the indicator is lagging, you may face several false signals. Therefore, it is wise to backtest the indicator on the demo account before starting live trading.
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