The Moving Average Ribbon indicator is a series of moving averages of different lengths plotted at the same time on a chart. The result is a ribbon appearance that gives a 3 dimensional look.
The ribbon is made up of 8 different length moving averages. In this indicator, an exponential moving average is used. The shortest moving average is called the base length. This is an input that can be set in the properties of the indicator. By default, it is set at 10. The rest of the averages are based off of the increment property, which is also defaulted to 10. The increment is the amount added to each average. For example, the second line is set to a 20 period, the third line is set to 30 and so on. Changing either the base or the increment will allow you to adjust the sensitivity of the indicator. Smaller numbers are more reactive to price movement and larger numbers are slower acting or smoother.
Traditional interpretation looks for all the averages to be moving in the same direction to determine that a trend is strong.
Positions are entered or added on to when the bars pull back or retrace to the lower moving averages as the blue arrow indicates in the image above. While this is a very basic interpretation, I choose to use a different approach in the interpretation of the Moving Average Ribbon indicator. I already have plenty of indicators that measure trends or tell me if a market is in a trend.
I like to look for the ribbon to consolidate and collapse on itself. These indicate a period of inflection and often a breakout point.
The yellow arrow shows where the ribbon collapses. In my opinion, a potential way to take advantage of a possible move is to place a bracket order above and below the current price channel.
The time frame this indicator is applied to will determine the type of strategy to use. On intraday charts, I would suggest sticking to trading the underlying instrument. However, if it is applied to a daily chart and you see the ribbon collapse, options can be a way to trade as well. Employing an options straddle strategy can possibly take advantage of a new trend after the ribbon collapses.
As with all indicators, there are many ways to interpret them and use them to determine proper strategies. You have to find what works for you.
This indicator is available in the Indicator Store through your dt Pro platform. If you have any problems with installing the indicator or its usage, please feel free to contact me at 312-706-7662 or email at mdunbar@danielstrading.com.
Try Insider Market Advisory – for 30 Days
Insider Market Advisory – Trial - This premier futures trade advisory service is designed to provide you with the timely information your trading depends on. Each day, you'll get a concise snapshot, from both technical and fundamental perspectives, of all eight futures market sectors.
A-Z Guide to E-mini Futures Trading
Download our FREE guide designed to help you understand E-Mini futures contracts! Learn the basics of how E-Mini stock index futures work.
Risk Disclosure
WHEN INVESTING IN THE PURCHASING OF OPTIONS, YOU MAY LOSE ALL OF THE MONEY YOU INVESTED.
WHEN SELLING OPTIONS, YOU MAY LOSE MORE THAN THE FUNDS YOU INVESTED.
STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.
THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.
THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.
TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.
YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.
GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.