The Guppy Multiple Moving Average (GMMA) is formally a technical indicator used in trading to spot changing trends. Australian trader Daryl Guppy developed it. This indicator combines two sets of moving averages, each with different timeframes:
1. Short-term: These moving averages have shorter time periods, typically 3, 5, 8, 10, 12, or 15 days. They help assess short-term trading activity.
2. Long-term: These moving averages use longer time periods, usually 30, 35, 40, 45, 50, or 60 days, to evaluate long-term investor activity.
All twelve moving averages are plotted on a chart, allowing traders to identify repeating patterns or relationships between short-term and long-term trends. This helps traders understand whether short-term sentiment aligns with long-term sentiment.
Traders use the GMMA in the following ways
1. Trend Strength: The gap between short-term and long-term moving averages indicates trend strength. A wide gap suggests a strong trend, while a narrow gap suggests a weaker one.
2. Trend Reversal: When short-term moving averages cross above long-term moving averages, it signals a bullish reversal, indicating an upward trend. Conversely, when short-term crosses below long-term, it suggests a bearish reversal, indicating a downward trend.
Traders often combine the GMMA with other technical indicators for better trading decisions. For example, they use the Relative Strength Index (RSI) to confirm whether a trend is losing momentum or analyze chart patterns to pinpoint entry or exit points following a GMMA crossover. This comprehensive approach improves the chances of successful trading.
