What Is a Moving Average Ribbon?

Moving average ribbons are a series of moving averages (MA) of different lengths that are plotted on the same chart to create a ribbon-like indicator. Traders can determine the strength of a trend by looking at the distance between the moving averages, as well as identify key areas of 澳洲幸运5官方开奖结果体彩网:support or resistance b♔y looking at the 𒐪price in relation to the ribbon.

The ribbons can also be used to signal potential trend changes when the price moves🧔 through the ribbons, or the ribbඣons cross each other.

Formula for a Moving Average Ribbon

 $\begin{aligned} &\text{Moving Average Ribbon} = \text{Multiple SMAs} \\ &\textbf{where:} \\ &\text{SMAs} = \text{Simple moving averages} \\ &\text{SMA} = \frac{ \text{Price}_1 + \text{Price}_2 + \text{Price}_3 + \cdots \text{Price}_n }{ n } \\ &n = \text{Number of periods} \\ \end{aligned}$​Moving Average Ribbon=Multiple SMAswhere:SMAs=Simple moving averagesSMA=nPrice1​+Price2​+Price3​+⋯Pricen​​n=Number of periods​

How to Calculate a Moving Average Ribbon

1. Determine how many MAs will be used.
2. Choose their lengths/lookback periods.
3. Calculate the simple moving average for each

What Does a Moving Average Ribbon Tell You?

Moving average ribbons are often made up of six to eight moving averages of different lengths, although some traders may choose fewer or more. Traders often use a 澳洲幸运5官方开奖结果体彩网:simple moving average♛ ribbon that is set at 10-period intervals, such as 10-, 20-, 30-, 40-, 50-, and 60-period moving a♌verages. The interval doesn't need to be 10-periods, it could be five, or 15, any other interval.

The responsiveness of the indicator can be adjusted by changing the number of time periods used in the moving averages, or by changing the type of moving average from a simple moving average (SMA) to an 澳洲幸运5官方开奖结果体彩网:exponential moving average (EMA).

The fewer the number of periods used to create the averages, the more sensitive the ri🔯bbon is to slight price changes. For example, a series of 5, 15, 25, 35, and 45-period moving averages will react quicker to short-term price changes than 150, 160, 170, 180-period movi🀅ng averages. The latter would be favored by a longer-term investor who only wants to highlight major turning points in the asset.

When the price is above the ribbon, or at least above most of the MAs, it helps confirm a rising price trend. MAs that are angled upwards also aid in confirming an uptrend.

When ওthe price is be꧒low the MAs, or at least most of them, and the MAs are angled downwards, it helps to confirm a falling price.

Special Considerations

Traders can adjust the indicator so that it provides support and resistance areas. Alter the lookback periods of the MAs so that the bottom of the ribbon, for example, provided support to a rising price trend in the past. In the future, the ribbon may act as support again. The same concept applies to 澳洲幸运5官方开奖结果体彩网:downtrends and resistance.

When the ribbon is expanding, that helps c🎀onfirm a strengthening trend. For example, during a strong pric🍬e rise, the MAs will fan out as the shorter MAs pull away from the longer-period MAs.

When the ribbon contracts, that indicates the price has entered a 澳洲幸运5官方开奖结果体彩网:consolidation or pullback phase.

When the ribbons cross, that can indicate a potential trend change. Some traders may wait for all the ribbons to cross to confirm a price reversal, while others may🧸 only nওeed to see a few of the MAs cross before taking action.

Moving Average Ribbon Example

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

In the example above, you can identify bullish or bearish trends by looking at when the indicators start to crossover lower or higher, which changes their color from green to red and red to green, respectively, on this charting platform. The widening of ꦺthe lines suggests that the tren🍃d's strength is increasing while narrowing lines suggest that the trend is losing its momentum.

Moving Average Ribboꦛn vs. Guppy Multiple Moving Ave⛄rage

Individual traders will determine how many MAs make up their moving average ribbon, and will also determine the lookback period of those MAs. The 澳洲幸运5官方开奖结果体彩网:Guppy Multiple Moving Average is⛄ more structured in that it has a set number of MAs with set lookback periods. While these can still be altered by the trader, the default settings for the Guppy are 12 MAꦐs, 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 cha♎rt, the harder it becomes to determine which ones are relevant. For example, if a trader is primarily focused on the bottom MA in a rising trend, then the other MAs are just cluttering the chart.

While ribbon contraction, crosses, and expansion can aid in assessing trend strength, pullbacks, and reversals, MAs are always lagging. This means that the pric♔e may have already moved significantly before the ribbon signals🌠 the price change.

The ribbon may provide support and resistance at times, but not at others. Also, as indicated above, one time the middle of the ribbon may provide support, while the next time it is the top or bottom of the ribbon. When support is broken, and the price has moved through all the ribbons, this would usually be considered a trend reversal, especially if the MAs have crosses each other as well, but such moves don't always result in a price reversal. The pullback may have just been deeper than the MAs, and following the pullback the original trend resumes.

Moving average ribbons are best used in conjunction with other forms of analysis, such as 澳洲幸运5官方开奖结果体彩网:price action, other technical indicators, and 澳洲幸运5官方开奖结果体彩网:fundamental analysis for longer-term traders.