This indicator was developed by Daryl Guppy. It is fully explained in TREND TRADING. Captures the inferred behaviour of traders and investors by using two groups of averages. Uses fractal repetition to identify points of agreement and disagreement which precede significant trend changes.
Applied to understand the nature and character of the trend. Used to assess the degree and extent of trading activity. Excessive trading activity can destabilise strong trends. Trend analysis enables more effective selection of appropriate trading strategies such as breakout, trend continuation etc. Can be applied to long side and short side trading. Can be applied to intraday trading. Also used for longer term investment style analysis.
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Join established trends at points of price weakness
Join established trends breaking to new highs
Trade breakouts using rally dips and rebounds
Trade downtrend rallies as rallies rather than trend breaks
Recognise trend breaks as they develop
*Degree and nature of separation in the long term group define trend strength and weakness
*Degree and nature of separation in the short term group define the nature of trading activity.
*Degree and nature of separation between the two groups of moving averages define the character of the trend.
*Compression shows agreement on price and value.
*Compression of both groups at the same time indicate major re-evaluation of stock and potential for a trend change
*Trade in the direction of the long term group of averages
*The relationships between the groups provide the necessary information about the nature and character of the trend.
*Do not use as a moving average crossover tool
Enables effective analysis of the trend environment
Improves selection of the appropriate trading tactics
Better understanding of trend strength
Effective evaluation of unusual price movements, such as dips and spikes
Effective understanding of trading activity and behaviour
Not effectively applied to trend less stocks
Cannot be applied to all trending stocks
Do not use as a moving average crossover signal