A moving average ribbon is a connected series of sequential moving averages. The trader determines how many MAs are used to create the ribbon, as well as the lookback periods (length) of each ribbon. When the price is above the MA ribbon, and the MAs are angled upwards, it helps confirm a rising price.
- A moving average ribbon is a connected series of sequential moving averages.
- The trader determines how many MAs are used to create the ribbon, as well as the lookback periods (length) of each ribbon.
- When the price is above the MA ribbon, and the MAs are angled upwards, it helps confirm a rising price.
- When the price is below the MA ribbon, and MAs are angled downwards, it helps confirm a falling price.
- When the ribbon expands it helps confirm a strengthening trend, but when they contract or cross it indicates a pullback phase or reversal.
Formula for a Moving Average Ribbon
Moving Average Ribbon=Multiple SMAs
where:
How to Set Up a Moving Average Ribbon
A common question is “How many moving averages do I use?”
It really depends on the trader.
Some traders like to use six to eight simple moving averages (SMA) set at 10-period intervals, such as the 10, 20, 30, 40, 50, and 60-day SMAs.
Other traders like to set up with SIXTEEN (or more) simple moving averages varying from a 50-day to a 200-day SMA and everything in between.
The argument for using longer-term MAs is that it gives a more accurate look at the overall trend.
Then other traders like to use exponential moving averages instead of simple moving averages.
So it’s really a matter of preference.
The responsiveness of the moving average ribbon can be adjusted by:
- Changing the number of time periods used in the moving average
- Changing the type of moving average from a simple moving average (SMA) to an exponential moving average (EMA)
The shorter the number of periods used when selecting which MAs to add to your chart, the more sensitive the moving average ribbon is to slight price changes.
Using moving averages with larger numbers of periods (like 200) are less sensitive and smoother.
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