The Guppy trading system AFL for Amibroker with Buy Sell signal

This trading system was developed by Australian trader Daryl Guppy and named after him. He had used a set of twelve exponentially-weighted moving averages.  He had selected 3, 5, 8, 10, 12, and 18 period exponentially-weighted moving averages ( EMA)  as short-term and 30, 35, 40, 45, 50, and 60 as long term EMA. This helps a trader to analyze the stock from different levels.

There are many ways to deploy this system, but rather than seeing this system as a cross over trading system we should view it as a trend momentum identifier. What has been suggested by Guppy is to take the sum of six short-term EMAs against the sum of the six long-term EMAs and look for trading signals.

The GMMA Trading system

The basic way of trading  using the Guppy Multiple Moving Average indicator is to wait for all  short-term EMAs cross above all  long-term EMAs, and sell when the short term EMAs cross below the long-term EMAs.

Guppy has suggested that this system could be programmed into your trading software by tracking the sum of the six short-term EMAs against the sum of the six long-term EMAs. When the sum of the short-term EMAs crosses above the sum of the long-term EMAs, a buy signal would be generated. This method is also well accepted.

Another way of using the GMMA indicator is to find out the strength of a current trend. This can be done by observing the EMA lines plotted on the chart. As I have already mentioned this system has two sets of EMA lines. If these lines are well separated it indicates the long term trend is intact. We have to watch out for flattened or merged EMA lines which is an indication of weaker long term trend. If the EMA lines goes on separating for a longer period, it is also a warning of possible sell off which can happen any time.

Compression will naturally take place before a change in trend. Therefore a trader has to be watchful when a compression is happening on the charts.

The AFL that I have posted is actually combined with a system called Kbrain. The reason why I included this is to make Buy Sell decisions easier. If the users want to turn off Kbrain they can do so in the properties window. I would like to give credits to the developer of both the Guppy and Kbrain trading system.

There are many advantages of guppy trading system. It gives us the overall trend direction. To some extend it gives us a picture of trading activity or behavior and nature of price movement.

The Guppy trading system has its disadvantages too. This can be applied to a trending stock only. A stock without any trend or sideways market will not produce any meaningful signals.

The AFL can be downloaded from here

Best of Luck and happy trading.