GMMA and others Multiple Moving Averages

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GMMA is another tool based on moving averages. It was introduced by Australian trader Daryl Guppy. He is using it in stock market but it works great in Forex. Like Rainbow it is best to join GMMA with other tools.

Construction of GMMA

We have two groups of moving averages:

  • 3, 5, 8, 10, 12, 15 – this group represents short term traders
  • 30, 35, 40, 45, 50, 55, 60 – this group represents long term traders

gmma-overview

You can build in by yourself in Metatrader. I used MA in color indicator which you can easily install in your MT4 platform. It allows you to have 3 colors for each average; different for move up, move down and range move. In the chart above you can see that during a correction move colors changed to blue and light blue, then after a while back to brown and red.

You can use type of averages which is best for you. I use in most cases exponential averages or linear weighted averages.

Main goal of GMMA – how to use it

When price moves, we have main trend and short term moves (correction). Long term traders want to profit from the main trend. Short term traders want to profit from this short moves. Each group has different goals, but when you join this two groups together you can see what is going on right now with the market.

You can use it to decide about trade direction. When each group is, wide and separated from each other, trend is strong. If not, it is possibly good idea to wait for situation to be clear. More in trade examples.

Problems with GMMA

Like Rainbow, GMMA is great in trending markets but can be dangerous when market is moving in a range. There are signals that we might have a range market – averages will be close to each other; short term group will oscillate around long term group. Like in the example:

gmma-range-move

It is a good to check other time frames, draw support and resistance lines, use longer averages (200 period long) so you can avoid trading in such market conditions.

Trade examples

GBP/USD, 15m

gmma-trade-example-1

We have here 15m chart of GBP/USD. It is a simple example how you can join GMMA and trend lines and breakout strategy. Of course, here we have only one line, but there are more complex patterns. Logic is the same – you draw trend lines and wait for a breakout. Thanks to the GMMA lines, you place a trade according to the direction of main trend.

DAX, 30m

gmma-trade-example2

On this 30m DAX chart we joined GMMA with Fibonnaci Retracement and Extension lines. GMMA lines work very well with Fibonacci. They help you to see the direction of move. Also, it is easier to spot a correction.
In this example price after swing move there was a correction down to the 50% retracement line. After that we saw a continuation move up to the 161.8% extension line. Easy and clear setup which you could execute with help of trend lines or your favorite oscillator.

USD/JPY, H4

gmma-trade-example3

On chart 4-hour USD/JPY with GMMA, MACD and weekly Pivot Points. This is example how you can mix GMMA with different tools. With help of Pivot Points, we can take profit when price is getting closer to one of S lines. Here it went down to S3 and later to S2 line. Gmma helps you to trade in direction of trend, Pivot Points to take profits at best places.

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