Guppy is the name of a strategy developed by Daryl Guppy, a globally recognized trader from Australia. He suggested using as many as two groups of moving averages to identify the strongest phase of a trend.
Before reading the article and writing your questions in comments section, I recommend to watch this video. It’s not long, but covers biggest part of questions on the topic.
The first group includes fast moving averages. The second group includes slow moving averages. Normally, we’re using the crossing of fast and slow MAs as an entry signal. The problem with this approach is that sideways price movement generates a bunch of false signals. The method designed by Guppy allows to filter out most deceptive signals. With this strategy, sideways movement is no longer a threat to a trader’s account.
Originally designed for stock markets, Guppy strategy was later adjusted for currency trading.
- You can use any currency pair but the author recommends using pairs with USD
- The best chart to trade is D1. If you’re trading lower timeframes, you can use the Guppy strategy for identifying the direction of a trend.
1) The first (fast) group includes 6 simple moving averages (SMA) with periods 3, 5, 8, 10, 12, and 15. (See the orange lines on the charts below.)
2) The second (slow) group also includes 6 SMAs with periods 30, 35, 40, 45, 50, and 60. (See the blue lines on the charts below.)
1) The slow SMAs must be heading upwards. Plus, they must be arranged in the following order: 30 > 35 > 40 > 45 > 50 > 60, with clear gaps between them. This is when an uptrend is considered to be strong.
2) The fast SMAs must be also heading upwards in the following order: 3 > 5 > 8 > 10 > 12 > 15. These lines identify retracement periods and help recognize trend continuation.
3) A candle, that forms when all the above-mentioned conditions are met, is called a signal candle. You need to place a buy stop order above its top.
4) You need to place a stop loss order below the bottom of a signal candle. Your stop loss must fall into the range between 70 and 100 pips (for 4-digit brokers).
5) Exit the market when the signal candle closes and fast SMAs cross.
1) The slow SMAs must be heading downwards. Plus, they must be arranged in the following order: 60 > 50 > 45 > 40 > 35 > 30, with clear gaps between them. This is when an uptrend is considered to be strong and you have a good chance to lock in a nice profit.
2) The fast SMAs must be heading downwards and go in the following order: 15 > 12 > 10 > 8 > 5 > 3. These lines identify retracement periods and help recognize trend continuation.
3) A candle, that forms when all the above-mentioned conditions are met, is called a signal candle. You need to place a sell stop order under the bottom of a signal candle.
4) You need to place a stop loss above the top of a signal candle. The size of your stop loss must vary between 70 and 110 pips.
5) Exit the market when a signal candle closes and fast SMAs cross.
More useful insights into the Guppy strategy
1) A signal candle must form outside the slow SMA group. Ideally, it should also be outside the fast SMA group.
2) If, following a trend reversal, fast SMAs changed their direction and arranged in the right order BEFORE slow SMAs did, you should overlook this signal.
3) It’s a good idea to trade several currency pairs at the same time so that losses from losing trades are covered by profits from winning trades.