Full Review of the Guppy Moving Average Strategy For Binary Options
The Guppy system, also known as the Guppy Moving Average, short for GMMA, is an indicator created by Daryl Guppy. He is the founder of GuppyTraders.com Pty Ltd and works around the globe teaching traders to use his systems. As a technical trader, he has written books and created various charting methods such. One of his books explains the GMMA which is the basis of this strategy. It basically uses several moving averages to measure short and long-term market activity and gives signals on crossovers. This strategy for binary options is a collaboration from me, the Geek, and Okane because it just happens we discovered the GMMA simultaneously . . . and find it highly useful for traders.
What is the Guppy Multiple Moving Average Tool?
The Guppy Multiple Moving Average is not just one tool but rather consist of 12 exponential moving averages. You can manually add them in MetaTrader 4 by going to Insert, Indicators, Trend and selecting Moving Average. Add 12 of them with the following periods; 3, 5, 7, 10, 12 and 15 classified as short-term and 30, 35, 40, 45, 50 and 60 as long-term. Choose a different color or nuance for the short and long term EMA’s so you can identify the both groups easier. We suggest something like red and blue, or purple and blue but it doesn’t matter, so long as you can tell them apart.
The idea is to use the EMA’s to find out whether the bulls or the bears are in charge of the market. Reversals, continuations and extremes can all be measured with these two bundles of indicators. Trend is determined by the longer term bundle of EMA’s, signals are given by the shorter term EMA’s. When the long term EMA’s are moving higher and the lower period EMA’s are all above the longer period EMA’s we consider the trend to be bullish and vice versa is true for bearish trends. Trades can be made on crossovers and bounces. This is how your chart should look like with all the EMA’s:
Blue nuances are 3, 5, 7, 10, 12 and 15 and purple nuances are 30, 35, 40, 45, 50 and 60.
When blue lines cross purple lines from below, the trend is going up and when the blue lines cross the EMA’s down from above we have a bearish trend. I have marked several call and put entries on this M5 chart as an example, using stochastic as a confirming indicator.
Trend Signal Rules:
Bull Market: When short term EMA’s all cross the long term EMA’s from below while they are going up it is a signal for an uptrend, calls can be taken. Also, after a crossover, when prices retreat to the short term moving average and bounce off of the longer term moving averages it signals a continuation of the bull trend and calls can be taken.
Bear Market: When short term EMA’s 3 all cross the long term EMA’s from above while they are going down it is a signal for a downtrend and puts can be taken. Also, once the shorter make the bearish crossover and then advance back to bounce off of the longer EMA’s it signals a continuation of the bear trend you can take puts.
In the picture above you can see how well the EMA crosses match the highs and lows that the candlesticks create. You can also notice that the more space there is between the two EMA groups, the more volatile the movement in that same direction has been. In other words, the distance between the two groups can be viewed as a hint to the strength of the trend and or/extremes of movement. When the distance narrows, a trend-shift might be imminent but it can also be the result of a consolidating market. We think it is super easy to use but it is crucial to have an understanding of trends, support and resistance and being able to read candlesticks before using this tool.
Why does the Guppy Multiple Moving Average Strategy Suck?
This strategy has a couple of problems that may make it suck for you. If you wait for the bullish or bearish crossovers on higher time frames you can count on some downtime when waiting for an entry. Plus, if you don’t have a grip on how to use support and resistance then the trend shift signal itself can sometimes turn out to be a fake one when it finally does show up. Finding an exact entry can be difficult too, because candles might continue right through the EMA that you consider as your support or resistance. The down side for trading really short term like 60 seconds is that there may not be enough action to get the waves to reveal trend.
Why doesn’t the Guppy Multiple Moving Average Tool Suck?
This strategy definitely does not suck. It uses clearly defined signals, is based on sound technical analysis and we both endorse it.
The Geek – “Solid strategy and a great framework for additional analysis. Support and resistance lines, Fibonacci Retracements, Pivot Points and even Bollinger Bands ™ can help to weed out the false signals. Just keep trend in mind and use charts time frames that provide enough movement to get the moving averages to create waves you can use. “
Okane – “I’ve also noticed that the signals on the lower time frames are pretty solid, which is a huge advantage for binary options traders! In addition, we always remain in the direction of the trend, hence getting rid of many of the false signals. The positives clearly outweigh the downsides – especially if you have at least some minor prior experience.”
Conclusion – Don’t be Grumpy, Use Guppy!
Daryl Guppy is an expert when it comes to trading and the Guppy system surly proves that he knows his technicals. It is without a doubt an easy strategy to understand and use. You will get the best out of it if you have some prior knowledge of reading charts and technical analysis but even newbies can get started with it. Usually when we do reviews of indicators we find higher time frames are more accurate but doing some back-testing we concluded that the lower time frames were just as good so long as clearly defined waves were present. We found 5 minute to one hour charts worked best, if using expiry with 5 minutes to one hour expiry you will love the Guppy Moving Average System. Just remember to add an indicator like Stochastic Oscillator and support/resistance to reveal the false signals and stick to the trend. You can follow up with us and other pro-traders on the Communitraders forums.