The Guppy Multiple Moving Average

[Traderji]

How to identify trends and trading ranges using the Guppy Multiple Moving Average

The Guppy Multiple Moving Average (GMMA) indicator tool is based on the relationships between groups of moving averages. Each group of averages in the GMMA provides insight into the behavior of the two dominant groups in the market - traders and investors. The indicator allows the trader to understand the market relationships shown in the chart and so select the most appropriate trading methodology and the best tools. The GMMA is designed to understand the nature of trend activity on an end of day, or intraday basis.

The inferred activity of traders is tracked by using a group of short term moving averages. The traders always lead the change in trend. Their buying pushes up prices in anticipation of a trend change. Their activity is shown by a 3, 5, 8, 10, 12 and 15 day group of exponentially calculated moving averages.

The trend survives only if other buyers also come into the market. Strong trends are supported by long term investors. The investor takes more time to recognize the change in a trend but he always follows the lead set by traders. We track the investors' inferred activity by using a group of long term moving averages. This group is 30, 35, 40, 45, 50 and 60 day exponentially calculated moving averages.

Metastock Formula:

Guppy's MMA Long Term (Colour RED)

Mov(C,30,E);Mov(C,35,E);Mov(C,40,E);
Mov(C,45,E);Mov(C,50,E);Mov(C,60,E)

Guppy's MMA Short Trem (Colour BLUE)

Mov(C,3,E);Mov(C,5,E);Mov(C,7,E);
Mov(C,10,E);Mov(C,12,E);Mov(C,15,E);

Well if you want me to procede further with this trading lesson discussion, I would want you all to post your favourite security with the following two indicators overlaid on it along with your comments.

 

[sh50]

Very good writeup showing the difference of investors and traders perspective


As shown in the charts, I have taken Bajaj Auto with the Mov(C,45,E);Mov(C,50,E);Mov(C,60,E) for long mov(C,10,E);Mov(C,12,E);Mov(C,15,E); for short. One has been taken with a strict short term perspective and the other medium to long term perspective.


Prices though declining are way above the long moving averages but in the short run they can go either way. Prices did not penetrate the earlier channel significantly and in the immediate future they seem to be headed towards the bottom channel line. RSI is not shown in the graph but the slope of its fall is far greater than the price showing a bearish divergence. The immediate future does seem bearish.

Any comments , traderji? Perhaps this is not a good selection since Bajaj Auto is always expected to do well in the long run.?

 

[Traderji]

If you have used the formula mentioned in the first post this is what you should see on your chart of Bajaj Auto (see attached chart)!

The relationship within each of these groups tells us when there is agreement on value - when they are close together and when there is disagreement on value - when they are well spaced apart.

When we combine multiple moving averages, a short term group and a long term group, we can see when the market has reached an agreement about the value of the stock. This can be used to understand the strength of the trend. Sustained activity of the short term averages above the long term group confirms a strong trend. The short term group will fluctuate, but while the long term group is in a steady band it suggests long term support.

Signs of a weakening of the trend are when both groups of averages begin to narrow down and fluctuate more than is normal given their past recent activity. If both groups converge towards a crossover, then a trend reversal is signalled.

The relationship between the two groups tells the trader about the strength of the market action. A change in price direction that is well supported by both short and long term investors signals a strong trading opportunity. The crossover of the two groups of moving averages is not as important as the relationship between them.

 

[sh50]

Thanks a million. This must easily rank as one of the best posts in the forum. You really explain the basics well. The sight of so many moving averages is truly moving- it set me thinking that if both the groups fall together, it will may seem like Niagara falls.

Intragroup-When you say within the group, it implies that when they are converging, the inherent trend they represent is strong(is that what agreement implies?) but when they are diverging, it is weak? Somewhat like good old divergence?

Inter-group This seems obvious. Cant you explain the situation quoting prices, supports and resistances citing the correct implication. on what one should do like you do for other scrips. The averages seem to be moving together but since the red ones are diverging, there will probably be no crossover or even intimacy? The long averages though diverging will eventually become stronger. Perhaps I am getting biased because of Bajaj Auto.

Thanks a million once again. In the past several months of learning Technical Analysis, this is the first time I have come across something like this. Its not there is books and therefore my sincere gratitude for sharing it with us.

By the way, your graphs are also spic and span. I have recently started on the paint accessory as suggested by onlinetrader( thanks to him too). Although I remove all the toolbars before pressing printscreen, it still involves some amount of cutting and pasting. Any tips on doing it better? Is there anyway one can just cut the graph portion in metastock and paste it in paint without the toolbars interfering. Even fullscreen after removing toolbars does not work.

 

[jaideep]

You guys are huge.

Wow!!! All over the head stuff for me (at least).

Anyway, am really glad am in the right forum with pros like you guys.

Don't slow down, keep going Gurujis. Will catch up with U one of these days.

 

[Traderji]

By the way, your graphs are also spic and span. I have recently started on the paint accessory as suggested by onlinetrader( thanks to him too). Although I remove all the toolbars before pressing printscreen, it still involves some amount of cutting and pasting. Any tips on doing it better? Is there anyway one can just cut the graph portion in metastock and paste it in paint without the toolbars interfering. Even fullscreen after removing toolbars does not work.

Try using snagit

This will help you capture any part of your screen.

 

[sh50]

How about a thorough analysis? Which price levels do you feel Bajaj auto is headed for from the current price levels from a short and long term perspective using the current analysis. Talking in terms of price makes it absolutely clear.

 

[Traderji]

How about a thorough analysis? Which price levels do you feel Bajaj auto is headed for from the current price levels from a short and long term perspective using the current analysis. Talking in terms of price makes it absolutely clear.

Bajaj Auto could head down to:
960.00
949.00
924.00

One will have to wait and watch.

 

[shrees678]

...The indicator[GMMA] allows the trader to understand the market relationships shown in the chart and so select the most appropriate trading methodology and the best tools. ...

Very nice information.
EDIT: Just read your later post.

 

[Gurmeet]

Great One !!

Infact in my introduction, I have also written about the simplicity and effectiveness of moving averages, and hence I was very happy to read something on that topic.

Surely what you have written is creative. It requires some bit of visualization on the part of the analyst and also perception.

But I feel that if we can use a software to study the variance between the gaps many number of scrips, we shall be able to generate a report on the most appropriate candidate for further studies.

Ive noticed that just sitting the whole day and studying charts can get detrimental after a while. Its best to have a small list generated by a system for deeper study.

Do keep up the good work. !!!

Cheers Always
Gurmeet