Let’s review some limitations of the Guppy multiple moving average (GMMA).
The main limitation of the Guppy is that is a lagging indicator.
This is because the Guppy consists of exponential moving averages (EMAs), and we’ve mentioned in a previous lesson, EMAs are lagging indicators.
A lagging indicator gives a signal after the trend has started.
This means that waiting for the EMAs to cross over can sometimes result in an entry or exit that is too late, as the price has already moved significantly.
With any trend-following indicator, you’re always going to end up getting into a trade AFTER the trend has already started and end up getting out of a trade AFTER the trend has already ended.
That’s why it’s called a trend-FOLLOWING indicator.
You don’t try to predict when a trend will start. You wait for it to form first, and then you simply follow it.
Also, all moving averages are also prone to whipsaws.
A whipsaw occurs where there is a crossover, which signals an entry.
But instead of the price moving in the expected direction, it moves back in the opposite direction, causing the EMAs to cross again, which signals an exit (and realized loss).
If you’d like to earn extra income trading on the Forex market, consider learning how to currency trade with Forex Smart Trade. With their super-accurate proprietary trading tools and best-in-the-business, personalized one-on-one training, you’ll be successful. Check out the Forex Smart Trade webinar. It shows one of their trader’s trading and how easy, intuitive, and accurate the tools are. Or try the Forex Smart Trade 14-day introductory trial for just TEN dollars.