What Is the Guppy Multiple Moving Average (GMMA)?
Let me explain the Guppy Multiple Moving Average, or GMMA, directly to you. It's a technical indicator designed to spot potential breakouts in an asset's price. Named after Daryl Guppy, the Australian financial columnist and author who created it in his book 'Trading Tactics,' this tool relies on exponential moving averages, or EMAs, to highlight the gap between price and value in a stock.
When these elements converge, it signals a major trend shift. I want you to know that Guppy insists the GMMA isn't a lagging indicator; instead, it gives you an early heads-up on emerging changes in price and value.
Key Takeaways on the GMMA
You should understand that the GMMA identifies shifting trends, breakouts, and trading chances by merging two sets of moving averages with varying periods. It includes a short-term group and a long-term group, each with six MAs, making 12 in total, overlaid on the asset's price chart.
Typically, the short-term MAs use periods like 3, 5, 8, 10, 12, and 15, while the long-term ones use 30, 35, 40, 45, 50, and 60. If the short-term group rises above the long-term one, it suggests an uptrend might be starting. On the flip side, if the short-term group drops below, a downtrend could be underway.
GMMA Formula and Calculation
The GMMA formula centers on exponential moving averages. You have the short-term and long-term groups, each with six MAs, totaling 12. You can adjust the number of periods, N, to fit your needs for each MA value.
The EMA calculation is: EMA = [Close price - EMA_previous] * M + EMA_previous, or start with SMA = Sum of N closing prices / N. Here, EMA_previous is from the prior period, and you can use SMA for the first one. The multiplier M is 2 / (N + 1), with SMA being the simple moving average and N the periods.
How to Calculate the GMMA
To calculate it, repeat these steps for each MA. Change the N value for the EMA you need—for instance, use 3 for a three-period average or 60 for a 60-period one. First, compute the SMA for N. Then, find the multiplier with that N. Use the latest close, multiplier, and SMA to get the EMA, placing SMA in the previous EMA spot initially.
Once you have that EMA, you don't need the SMA anymore; use the new EMA for the next calculation's previous spot. Keep going until you've got EMAs for all 12 MAs.
What the GMMA Tells You
The separation between short- and long-term MAs indicates trend strength—wide separation means a strong trend, while narrow gaps or crisscrossing lines point to a weakening trend or consolidation. Crossovers signal reversals: short-term above long-term means a bullish shift, and the opposite indicates bearish.
If both groups move horizontally and intertwine, the asset lacks a clear trend, so it might not suit trend trading but could work for range trading. Remember, the GMMA is best for spotting trend changes or gauging strength, and you should pair it with other indicators.
For signals, buy when short-term MAs cross above long-term, and sell when they cross below—but skip this in sideways markets. After consolidation, watch for crossover and separation as a breakout sign. In a strong uptrend, if short-term MAs pull back toward long-term without crossing and then rise again, that's a chance to go long. The same applies to downtrends for shorts.
GMMA vs. a Single EMA
Since the GMMA is made of 12 EMAs, it's essentially an EMA collection. Guppy designed it to help isolate trades, spot opportunities, and warn of reversals. The multiple lines let you see trend strength or weakness better than with just one or two EMAs.
Limitations of the GMMA
The key drawback is that it's lagging, like the EMAs it's based on—each reflects past averages, not future predictions. Waiting for crossovers can mean late entries or exits after aggressive price moves. MAs also face whipsaws, where crossovers lead to trades that fail, crossing back and causing losses.
To improve your chances, combine the GMMA with other indicators, like RSI for reversal signs or chart patterns for entry/exit points after crossovers. Note that this information isn't personalized advice; investing carries risks, including potential loss of principal.
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