Another Look at Multiple Moving Averages

Here’s an example of Guppy’s Multiple Moving Averages (MMAs) in action. Below is the NASDAQ daily chart for the last 12 months. The long term group of MMAs is in orange and the short term group is green. Note how the short term group tends to bounce off of the long term group when the long term group is well spread. It’s not until the long term group starts to converge that the short term group can slip under the long term group, like what happened in February and March. You can also see how proximity to the lower Bollinger Band (blue) was also a buy signal while the long term group was spread out.

One thing that I like about MMAs is that you can make the actual price chart invisible and still see what’s going on:

That chart should really give you an idea of how the two groups play off of each other. You can also see how reversals in the short term group are marked by the shortest term average getting too far away from the rest of the group (Guppy calls those areas bubbles). Then the long term group tends to exert a gravitational pull of sorts.

As long as the long term group is showing a strong trend it’s generally pretty easy to find good reward/risk trades. You just wait for the short term group to try to push its way through the long term group, then trade in the direction of the long term group once the short term group begins to get repelled. Alternately, you could make trades against the long term trend once the short term group becomes ‘bubblicious’. Those bubble areas are also places to take and/or protect profits.

P.S. Here’s an article that I just found by Darryl Guppy — The Guppy Multiple Moving Average

Trackbacks

  1. Exxon Mobil - a long term DRIP success story

    At the time I opened the account I didn't understand or know about technical analysis. I just knew that Exxon was a good company with solid dividends and seemed like a safe company. At that time I only knew of analyzing a company using fundamental…