GMMA Trend Identification in Less Than 60 Seconds
It takes only 3 seconds to decide if someone likes you and 8 seconds before you lose people’s attention. If someone asks about what you do, you had better make it short. Good stocks might take a little longer to recognise but it should also only take seconds. By placing the GMMA indicator onto a chart, it should take less than 60 seconds to recognise a trending stock.
Let’s look at how the GMMA works to identify good trending stocks.
Figure 1, summarises at the most basic level of how the GMMA helps us to quickly identify the trend on a chart.
The first box on the left identifies an uptrend.
When the blue lines of the short-term GMMA are above the red lines of the long-term GMMA, there is an uptrend.
The blue lines are the moving averages of the short-term group. They show the activity of the traders in the market. Traders are a proxy for the short-term GMMA group capturing the short-term sentiment in the market.
The red lines represent the long-term group. They show the activity of the long-term investors in the market. Investors are a proxy for the long-term GMMA group capturing the long-term sentiment in the market.
In the middle box, the GMMA shows no trend.
When the lines of the GMMA are compressed it means an agreement in price is being reached. From here price will eventually emerge from the compression either upwards or downwards. It may continue in the same trend direction before the compression or change to move in the opposite trend direction.
The last box on the right in Figure 1 identifies a downtrend.
When the red lines of the long-term GMMA are above the blue lines of the short-term GMMA, there is a downtrend in place.
The GMMA makes it very clear if a stock is worth analysing further.
Figure 2, is an example of how the GMMA lines might move and change on a chart. On the left side of this chart, the blue group is above the red group and there is a general uptrend. The wide separation of the moving average lines reflects the high activity of the short-term traders and the long-term investors in the market.
When the blue group moves down to sit below the red group there is a general downtrend. A compression in either of these groups means there is an agreement on price and the potential for a trend change or trend continuation.
After compression, we often see an expansion and separation of the moving average lines. A good example is at the far right side of the chart as circled, where we see compression then upward movement of the lines with separation. When the lines begin to separate, we see the beginnings of a potential trend breakout. Widely separated moving averages show there is strength in the trend.
The short-term GMMA is a group of exponential moving averages with the values of 3, 5, 8, 10, 12 and 15. The long-term GMMA is a group of exponential moving averages with the values of 30, 35, 40, 45, 50 and 60. If your charting platform does not have the GMMA indicator then manually add the exponential moving averages onto the chart and save it as a template for future use.
The following past trade on American Borate (ABR), demonstrates some of the principles I used to trade this stock by placing the GMMA indicator over the chart.
On the Daily chart of ABR, Figure 3, the blue lines of the short-term GMMA are above the red lines of the long-term GMMA. In other words, the short-term group of traders is above the long-term group of investors. This is in the order of an uptrend. The widely separated moving average lines of the long-term GMMA showed strong support from the long-term investors for the uptrend in place. Focusing on the right side of the chart, the blue lines of the short-term GMMA had compressed slightly 2 candles back and were now beginning to expand up and out. This uptrend had potential.
A position was opened as marked by the blue arrow for an entry price of $2.02. The ATR line drawn marks my initial stop loss and I set a profit target of $2.42.
Price traveled sideways for a number of days. The compression of the short-term GMMA signalled a general agreement in price. Short-term traders were deciding what to do next.
Price started to move up at the same time as the short term GMMA started to expand and move upwards. Short-term traders were active again and pushing price up. The long term GMMA also started to move up with well separated moving averages, showing good support for the emerging uptrend. As price rose so did the ATR line. I moved my stop loss up, matching the price on the line. This method protects profits along the way as price rises.
My profit target of $2.42 was reached where I have drawn the dotted line. An exit was made the next day at the higher price of $2.45 as marked by the yellow star. After the trade was closed the short-term GMMA started to fall through the long term GMMA. Price triggered the ATR stop loss line and this was a signal of a trend change. The trend had now changed to a downtrend.
The GMMA is useful for any timeframe in many markets including FX, commodities and cryptocurrencies. It indicates to us if we should go long or short and it also tells us if perhaps, we should be staying out of the market. The GMMA enables us to eyeball a chart and recognise a trend in less than 60 seconds.
Note: This article was based on my presentation "Recognise a Trending Stock in Less than 60 Seconds", as part of the GO Markets ‘GO Master Series’.
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