What is the Guppy Multiple Moving Average - GMMA
The Guppy Multiple Moving Average (GMMA) is a technical indicator that identifies changing trends by combining two groups of moving averages with differing time periods. The term gets its name from Daryl Guppy, an Australian trader who is credited with its development.
BREAKING DOWN Guppy Multiple Moving Average - GMMA
The Guppy Multiple Moving Average is created using two sets of moving averages:
- Short-term: The first set of moving averages have a relatively brief time frame and are used to assess short-term trading activity. The number of days used in these moving averages are usually 3, 5, 8, 10, 12, or 15.
- Long-term: The second set of moving averages use extended time periods and are used to assess long-term investor activity. The number of days used in these moving averages are usually 30, 35, 40, 45, 50, or 60.
These twelve moving averages are all plotted on a chart where traders can look at fractal repetitions. In particular, traders look at the relationship between the two sets of moving averages to determine if the short-term trading outlook aligns with the long-term investment outlook.
Example of a Guppy Multiple Moving Average
The following chart shows an example of a Guppy Multiple Moving Average for the S&P 500 SPDR (SPY):
Chart courtesy of TradingView.com.
By looking at the various moving averages, traders can quickly determine the short- and long-term sentiment in relation to each other. A sideways movement in the short-term moving averages is put into context by the long-term moving averages that show the prevailing trend.
Using the Guppy Multiple Moving Average
The Guppy Multiple Moving Average can be used to identify changes in trends or gauge the strength of the current trend.
- Trend Strength: The degree of separation between the short- and long-term moving averages can be used as an indicator of trend strength. If there's a wide separation, then the prevailing trend is strong, and vice versa.
- Trend Reversal: The convergence and crossover of the short- and long-term moving averages represent trend reversals. If the short-term crosses above the long-term moving averages, then a bullish reversal has occurred, and vice versa.
Traders should use the Guppy Multiple Moving Average in conjunction with other technical indicators to maximize their odds of success. For example, traders might look at the Relative Strength Index (RSI) to confirm whether a trend is getting top-heavy and poised for a reversal, or look at various chart patterns to determine an entry or exit point after a GMMA crossover.