Moving averages (MAs) are flexible and all-round. They involve plotting several moving averages around the price chart in a shape resembling a ribbon. Essentially, the indicator is usually an interconnected series of moving averages that are sequential. As a trader, you can use the indicator in determining the number of MA’s that are used in the creation of the ribbon. Thus, the main purpose of a moving ribbon indicator is to provide traders with a variety of usage possibilities. If you are a trader, this method will help you determine the strength of a given trend. It will also help you set several support and resistance levels.
Calculation of Moving Average Ribbon Indicator
Moving Average Ribbon=Multiple SMAs
To calculate a simple moving average, you will add the price of a given instrument for a given number of time periods, then divide the sums obtained by the time periods. The formula you can use to calculate a simple moving average is:
SMA = (Sum ( Price, n ) ) / n ,
Where: n = Time PeriodMoving Ribbon Indicator | Technical Indicator Click To Tweet
Analysing Trends Using the Moving Average Ribbon
The main idea behind using “moving average ribbons” is that rather than using only one MA on a chart, you will be using several moving averages, which range between 6 and 16 MAs (or more). You can assess a trend’s strengths by looking at how smooth the ribbon is. Identification of key support or resistance areas may be through looking at the price in relation to the ribbon. (Look at the historical prices of several stocks and trading assets on Tradinview’s charts)
How to Trade with Moving Average Ribbons
Expanding Moving Average Ribbons
A moving average ribbon that is expanding shows that the trend is almost coming to an end. If you notice the widening and separation of the moving averages, this means that the direction of a recent price is at its maximum, hence signalling that a trend has ended.
Contracting Moving Average Ribbons
A moving average ribbon that is contracting signifies a likelihood of changes in the trend. This is also known as ribbon ‘contraction’ and happens when moving averages begin converging towards each other, signalling the commencement of a possible trend change. When prices incline towards one direction, you will begin noticing moving averages for a shorter-term merging first.
Parallel Moving Average Ribbons
A parallel moving average ribbon signifies that a trend is strong. It means that all the moving averages are in “sync” since they are moving together. Be keen on the spacing between the Moving Averages.
Moving Average Ribbon vs. Guppy Multiple Moving Average
For the moving average ribbon, individual traders will establish the look-back period about the MAs. The Guppy Multiple Moving Average is more organized in that it puts in place many moving averages with already established look-back periods.
Start Trading Using the Moving Average Ribbon
After knowing how to analyse trends and learning how to trade using the moving average ribbon, it is now time for you to start trading and find out how this tool suits you! Contact us today for more information.
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