Guppy Multiple Moving Average: two groups of traders on one chart

What it measures

The GMMA plots twelve exponential averages in two groups: six short ones representing traders and six long ones representing investors.

The premise is that these two groups behave differently, and that the relationship between the ribbons shows when they agree. Agreement is what makes a trend durable.

It is a way of reading conviction rather than direction, which is why it looks like clutter to anyone using it for entries.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   Compute six exponential averages with short periods, conventionally three, five, eight, ten, twelve and fifteen.

2. 2

   Compute six more with long periods, conventionally thirty, thirty-five, forty, forty-five, fifty and sixty.

3. 3

   Plot both groups on price, coloured so the two ribbons are distinguishable.

Settings

The two groups matter, the exact periods do not. Any six short and six long averages produce the same reading, and moving them closer together only makes the compression harder to see.

How to read it

• A compressed short ribbon means traders have reached agreement, and expansion out of compression is the start of a move.
• A compressed long ribbon means investors are undecided, and a trend that starts while the long ribbon is tangled tends not to last.
• Both ribbons expanding in the same direction is the strongest configuration the indicator produces.
• The short ribbon poking into the long one and being rejected is a pullback holding; passing through it cleanly is a trend change.
• The most practical read is the short ribbon against the long one during a pullback. If the short ribbon compresses and turns without penetrating the long ribbon, the trend has held and investors never flinched; if it cuts through and the long ribbon starts to tangle, the pullback has become something else.

Where it misleads

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