Moving Average Ribbon

What Is a Moving Average Ribbon?

Moving average ribbons are a series of moving averages (MA) of various lengths that are plotted on a similar chart to make a ribbon-like indicator. Traders can determine the strength of a trend by taking a gander at the distance between the moving averages, as well as recognize key areas of support or resistance by checking out at the price corresponding to the ribbon.

The ribbons can likewise be utilized to signal potential trend changes when the price travels through the ribbons, or the ribbons cross one another.

Formula for a Moving Average Ribbon

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Step by step instructions to Calculate a Moving Average Ribbon

1. Determine the number of MAs that will be utilized.
2. Pick their lengths/lookback periods.
3. Work out the simple moving average for each

What Does a Moving Average Ribbon Tell You?

Moving average ribbons are frequently made up of six to eight moving averages of various lengths, albeit a few traders may pick less or more. Traders frequently utilize a simple moving average ribbon that is set at 10-period intervals, like 10-, 20-, 30-, 40-, 50-, and 60-period moving averages. The interval needn't bother with to be 10-periods, it very well may be five, or 15, some other interval.

The responsiveness of the indicator can be adjusted by changing the number of time spans utilized in the moving averages, or by changing the type of moving average from a simple moving average (SMA) to a exponential moving average (EMA).

The less the number of periods used to make the averages, the more sensitive the ribbon is to slight price changes. For instance, a series of 5, 15, 25, 35, and 45-period moving averages will react speedier to short-term price changes than 150, 160, 170, 180-period moving averages. The last option would be favored by a more extended term investor who just needs to feature major defining moments in the asset.

At the point when the price is over the ribbon, or if nothing else above the vast majority of the MAs, it affirms a rising price trend. MAs that are calculated upwards likewise aid in affirming a uptrend.

At the point when the price is below the MAs, or if nothing else the vast majority of them, and the MAs are calculated downwards, it assists with affirming a falling price.

Special Considerations

Traders can adjust the indicator with the goal that it offers help and resistance areas. Modify the lookback periods of the MAs so the lower part of the ribbon, for instance, offered help to a rising price trend in the past. Later on, the ribbon may act as support once more. A similar concept applies to downtrends and resistance.

At the point when the ribbon is growing, that affirms a strengthening trend. For instance, during a strong price rise, the MAs will fan out as the shorter MAs pull away from the more drawn out period MAs.

At the point when the ribbon contracts, that shows the price has entered a consolidation or pullback phase.

At the point when the ribbons cross, that can show a potential trend change. A few traders may trust that every one of the ribbons will cross to affirm a price reversal, while others may just have to see a couple of the MAs cross before making a move.

Moving Average Ribbon Example

The accompanying chart shows an illustration of a moving average ribbon in the SPDR S&P 500 ETF (SPY).

In the model above, you can recognize bullish or bearish trends by taking a gander at when the indicators start to crossover lower or higher, which changes their variety from green to red and red to green, separately, on this charting platform. The enlarging of the lines recommends that the trend's strength is expanding while at the same time restricting lines propose that the trend is losing its momentum.

Moving Average Ribbon versus Guppy Multiple Moving Average

Individual traders will determine the number of MAs that make up their moving average ribbon, and will likewise determine the lookback period of those MAs. The [Guppy Multiple Moving Average](/guppy-numerous moving-average) is more structured in that it has a set number of MAs with set lookback periods. While these can in any case be altered by the trader, the default settings for the Guppy are 12 MAs, with periods of three, five, eight, 10, 12, 15, 30, 35, 40, 45, 50, and 60.

Limitations of Using a Moving Average Ribbon

The more MAs there are on a chart, the harder it becomes to determine which ones are pertinent. For instance, in the event that a trader is primarily centered around the base MA in a rising trend, then different MAs are just jumbling the chart.

While ribbon contraction, crosses, and expansion can aid in surveying trend strength, pullbacks, and reversals, MAs are dependably lagging. This means that the price may have previously moved altogether before the ribbon signals the price change.

The ribbon may offer help and resistance now and again, yet not at others. Additionally, as indicated over, once the middle of the ribbon may offer help, while the next time it is the top or lower part of the ribbon. At the point when support is broken, and the price has traveled through every one of the ribbons, this would ordinarily be considered a trend reversal, especially in the event that the MAs have crosses each other too, however such moves don't necessarily bring about a price reversal. The pullback may have just been more profound than the MAs, and pursuing the pullback the original direction resumes.

Moving average ribbons are best utilized related to different forms of analysis, for example, price action, other technical indicators, and fundamental analysis for longer-term traders.

Features

• A moving average ribbon is an associated series of sequential moving averages.
• The trader determines the number of MAs that are utilized to make the ribbon, as well as the lookback periods (length) of every ribbon.
• At the point when the price is over the MA ribbon, and the MAs are calculated upwards, it affirms a rising price.
• At the point when the ribbon extends it affirms a strengthening trend, yet when they contract or cross it demonstrates a pullback phase or reversal.
• At the point when the price is below the MA ribbon, and MAs are calculated downwards, it affirms a falling price.