MA Ribbon report

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 support or resistance by looking at the price 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 ribbons cross each other.

Key Takeaways

• 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.

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Formula for a Moving Average Ribbon

Moving Average Ribbon=Multiple SMAswhere:SMAs=Simple moving averagesSMA=Price1+Price2+Price3+⋯Pricennn=Number of periods​Moving Average Ribbon=Multiple SMAswhere:SMAs=Simple moving averagesSMA=nPrice1​+Price2​+Price3​+⋯Pricen​​n=Number of periods​

How to Calculate a Moving Average Ribbon

• Determine how many MAs will be used.
• Choose their lengths/lookback periods.
• 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 simple moving average ribbon that is set at 10-period intervals, such as 10-, 20-, 30-, 40-, 50-, and 60-period moving averages. 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 exponential moving average (EMA).

The fewer the number of periods used to create the averages, the more sensitive the ribbon 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 moving 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 the price is below 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 downtrends and resistance.