Trend Trading tool No.1

Mr. Daryl Guppy

Many Successful traders say that trend following is the most effective and easiest way to make money in the marketplace. Swimming against the stream wont get you anywhere. It is with the stream you can cover a large distance with relatively little time and effort. The famous turtle traders made large sum of money by following trends. Ed Seykota is another legendary trader who did the same. Statistics has shown that trend lasts only 15% to 30% of the time , so 70% to 85% of the time market remains trendless. A trend trader will be stopped out frequently but when he catches a good trend , all his losses will be covered , and then he will make profit. The edge in this type of trading is not in correctly predicting the move but how religiously the trader is following his system. If you doubt your signal and don't take the trade, it may end up being a large trend and lock you out of profit. Another type of trend trading is also very popular, It is called "Pullback Trading". When a stock goes up or down , it never goes like a straight line , instead moves in a zigzag fashion.


A trending stock reverse temporarily for a few days and then resume to it's original path. This temporary reversal gives an opportunity to enter and when it resume to its original movement the trader becomes profitable.

The technical tool that I am going to discuss today is called "Guppy Multiple Moving Average". I am sure many of you already know about this indicator. If you pick a stock with good sales and earnings and apply this indicator, it may become a good weapon in your arsenal.

An Australian trader named Daryl Guppy discovered this indicator. He used two sets of exponential moving averages , a short set and a long set, to determine the outlook of short term traders and long term investors. the short set lengths are 3,5,8,10,12,15 while long lengths are 30,35,40,45,50,60 periods. If short sets intersects the long set from below , it is a good signal of starting an uptrend, vice-versa for downtrend.





In the picture the blue set is short term averages and red set is long term averages. As long as the blue set of averages are above red set , the trend is intact. Also when in an uptrend , the short set comes down to long set and gets squeezed , but don't penetrate, it is a good time for a pullback entry.

In the chart of HCLtech, an IT company, you see the short term averages(Green set) remains above the long term averages(Red Set). It denotes the trend is up and its better to take long trades and avoid trades on the short side. You may use an oscillator with it to time the pullback trades as well. If you would like to have more information , just google " Guppy multiple moving averages".


last but not the least thanks to Mr. Daryl Guppy for giving us such a wonderful indicator.