Spot Buy-Sell Signals Using Moving Average Ribbon

Authored On: 29-Jul-15

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Article gives a detailing as to how one can spot bullish or bearish signals on price chart of security using Moving Average Ribbon

Moving averages have been used as simple but still effective indicator to gauge the overall price trend
Chartists at times use three different 'durations' of moving averages to spot and confirm the changes in trend. The three moving averages typically refer to shorter term, intermediate term and longer term durations. E.g. Moving averages for say 10-days, 20-days, 40-days
Also, chartists use different types of moving averages, such as simple, exponential, weighted

While using different types of configurations for moving averages as said above, common ways for to spot strengthening of uptrend is lower duration moving average crossing higher duration moving average from below. Similarly, common ways for to spot weakening of trend is lower duration moving average crossing higher duration moving average from above of it.
Few chartists look for this to happen across two pairs that exists, when they choose three types of moving averages on the chart.

While all this is easy and useful, Moving Average Ribbon is extension of all of above
In Moving Average Ribbon, a set of moving averages are used to spot and confirm the up and down trend. In this set, not just three but around 7 to 8 different moving averages are used
See below figure and how to spot buy and sell signals upon confirmation of up and down trends. Below figure uses Moving Average Ribbon consisting of total 7 different moving averages, all of which are of exponential configuration

However, please note following points. . .

Moving averages as such do not represent a very strong indicator and is only to be used along with other indicators

Summary Lines:

Using moving averages, their different durations and averaging types provide an easy way to confirm price trend. Moving Average Ribbon is an easier extension of the same.