Trend following is always considered the best trading method, not only in Forex but also in any other financial market. There are a lot of well-developed trending strategies that help trader generate substantial profit by sticking to the market trend. Today, we are going to discuss about one among them – The Guppy Strategy.
The Guppy inception
The Guppy system, also known as the Guppy Multiple Moving Average, short for GMMA, is an effective indicator developed by Daryl Guppy - the founder of GuppyTraders.com Pty Ltd.
The GMMA contains two separate sets of exponential moving averages (EMAs) which traders could manually add in MetaTrader 4 software. One set of moving averages has a relatively brief time frame, highlighting the sentiment and direction of short-term traders. The number of days used in the set of short-term averages is usually 3, 5, 7, 10, 12 or 15. The other set is created with prolonged time periods and is applied to determine the market’s long-term activity. These averages usually use periods of 30, 35, 40, 45, 50 or 60 days.
Forex markets are notably more volatile than any other one, and the earlier a technical indicator could define the market conditions the more useful that indicator considered. The Guppy system not only is flexible enough to determine short-term market performance, but also enables traders to identify longer-term trends.
How to trade with Guppy system
Traders normally look at the performance of the two EMA sets (usually setup with two diffirent colors) to define the current market conditions and collect trading signals. A bullish trend is present when the short-term EMAs are above the long-term EMAs with a sensible distance. Conversely, a bearish trend occurs when the short-term averages are below the long-term averages. Too much crossover between the sets of moving averages suggests a choppy market.
If a short-term trend does not appear to be gaining any support from investors, it may be a reference of overbought or oversold conditions.
The pros and cons of using the GMMA strategy
The Guppy Multiple Moving Average is one of the best indicators which enable us to soonly determine the market conditions. However, new traders may find this strategy difficult to use due to lots of entries generated by the EMA lines. Moreover, the fact that this system is only composed by trending indicators (EMAs) makes us hard to grab trading signals when the market is consolidating. It is better if we combine the system with another oscillating indicator such as Relative Strength Index (RSI) or Commodity Channel Index (CCI) to find signals.
"The trend is your friend" is one of the best known sayings. The Guppy Multiple Moving Average is a trend-trading system. Sticking to the market trends always helps traders win more than lose. But as we have known, there’s no indicator being right all the time, even the most well-developed ones. No exception. As mentioned above, this Guppy system only works best if it’s combined with an oscillating indicator. Applying the GMMA indicator with higher time frames also helps traders get more reliable trading signals. Besides, traders must have prior knowledge of reading charts and technical analysis, especially price action to use this strategy flexibly.