The GMMA indicator (Guppy Multiple Moving Average ) what ?
The Guppy Multiple Moving Average (GMMA) is an indicator (indicator) that determines market trends to find trading opportunities by combining two groups of moving averages (MAs) with different time periods. There is a group of short-term MAs, and a group of long-term MAs. Each group has 6 MA lines, for a total of 12 lines. This indicator is named by Daryl Guppy, an Australian trader who created and developed it.
Key Elements of GMMA
- The Guppy Multiple Moving Average (GMMA) is applied as an overlay on the price chart of an asset.
- Short-term MAs are usually set at 3, 5, 8, 10, 12, and 15. Long-term MAs are typically set at 30, 35, 40, 45, 50, and 60.
- When the short-term moving average moves above the longer-term group, it indicates an uptrend in an asset may be forming.
- When the short-term group crosses below the long-term MA, an asset’s downtrend can begin.
- The combination of the fast MA lines “constricts” while the slow MA group is still expanding, which shows a strong bullish or bearish trend.
- If both groups cross, it shows that the current price trend has stopped and a trend reversal is possible.
- Traders often use the long-term MA group to identify market trends, and the short-term MA group for buy or sell signals.
The formulas for the GMMA indicator are:
The Guppy indicator can use moving averages or EMAs. The EMA is more commonly used. There are twelve moving averages.
How to calculate each MA value.
EUSAA=[Giá đóng cửa−EMAprevious]*USA+EUSAApreviouS
SUSAA=(∑Close price of)/Women
EMA = exponential moving average
EUSAAprevious = Previous EMA
(SMA can substitute for EUSAAprevious in the first calculation)
N: period of the moving average (e.g. 5 days, or 15 days, 10 hours…)
M = 2/(N+1)
SMA = simple moving average
How to calculate indicator GMMA
There are 12 exponential moving averages in the Guppy indicator. Repeat the steps below for each moving average that you want to calculate. Change the value of N to calculate the EMA you want. For example, use N=3 to calculate a 3-period average and use N=60 to calculate a 60-period EMA.
- Calculate the SMA for the first N periods (eg 3 periods).
- Calculate the multiplier M using the same value of N (N is used to calculate the SMA).
- Use the most recent closing price, the multiplier M, and the SMA to calculate the EMA. SMA is placed at EUSAApreviouS in the first calculation. Once the EMA has been calculated, the SMA is no longer needed, because the next EMA calculation already contains the EMA that has just been calculated to replace the SMA in the first calculation.
- Repeat the process for the next N value, until you get an EMA for all 12 periods.
GMMA indicator tell you what?
The GMMA can be used to identify changes in trend or gauge the strength of an existing trend.
The degree of divergence between short-term and long-term moving averages can be used as an indicator of trend strength. If there is a wider divergence, the stronger the ongoing trend is. Narrower divergences, or intersecting lines, indicate a weakening trend or a sideways period.
The crossover of the short-term and long-term moving averages represents a possible trend reversal. If the short-term lines cross the long-term moving averages from bottom to top, a bullish reversal is occurring. If the short-term MAs cross above the long-term MAs from top to bottom, a bearish reversal is occurring.
When both groups of MAs are moving horizontally, or mostly moving sideways and heavily intertwined, it means that the price is in a sideways state, and therefore the market now is not the time to wait. for trend traders. These periods can be good for short-term trades (perhaps a day or a few hours).
The indicator can also be used for buy and sell signals. When the short-term group crosses the long-term MA from bottom to top, enter a buy order. When the short-term group crosses the longer-term group from top to bottom, enter a sell order. These signals should be avoided when the price and the MAs are moving sideways (sideway market). When the moving averages start to split this usually means a new trend could be formed (up or down). During a strong uptrend, when the short-term MAs turn above the long-term MAs and then the short-term MAs gradually settle above the long-term MA, this is an opportunity for traders to enter a buy position. with an uptrend being formed. The same concept applies to downtrends.
Traders should use GMMA in combination with other technical indicators to maximize their success rate. For example, you can look at the Relative Strength Index (RSI) to confirm if a trend is becoming the heaviest (overbought, oversold) and ready for a price reversal. Consider different candlestick chart patterns to identify other entry or exit points after the MA lines in the GMMA indicator cross each other.
The difference between GMMA and EMA
GMMA consists of 12 EMAs, so GMMA and EMA are basically the same. The GMMA is a collection of EMAs that the creators believe help isolate trades, spot opportunities, and warn of price reversals. Guppy’s multiple MAs help some traders see strength or weakness in a trend better than using just one or two EMAs. (Through my trading process, I see that the EMA reacts correctly to the longer period, so the GMMA indicator will too).
Limitations of use GMMA
The main limitation of Guppy and the EMA composed by it is a lagging indicator. Each EMA represents the average price from the past. Sometimes, waiting for MAs to cross can make you buy too late or get out too late, because the price has already moved strongly before the GMMA indicator gives an entry signal. All moving averages are also susceptible to noise. This is when there is a crossover, which shows you the possibility of a trade, but the price doesn’t move as expected and then the moving averages cross again and lead to a loss.
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