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Chapter 13, Part II. Leading Indicators – Oscillators. Page 3

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 20, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Correct leading indicators and tools

    Commander in Pips: Ok, before we will start, answer one very simple question – how do you imagine the perfect leading indicator?

    Pipruit: Well, It should show trend shift ahead of time with 100% probability, and generate a signal in advance of current price action. Also, since a signal has been generated, it should not be impacted by following price action.
    Commander in Pips: Oh, some hope! I think you will get such indicator if you will get a job in with the Fed Reserve, near its chairman. But in general you’re right. That is what we want from an ideal leading indicator. Unfortunately such kind of indicator does not exist. But there are some trading tools that have one or another property of such indicator.

    But before we will discuss them, I just want to note, why I do not recognize oscillators as leading indicators. Because they need price action before they will give signal, and this signal changes with each price tick. How then we could call them “leading” as they only response to past price action, even if they do it fast? All oscillators from my view of categorization are lagging. And what are leading indicators then?

    Leading indicators of support resistance

    1. Fibonacci retracement levels. Since any retracement has started – price action will hold inside the initial swing that uses for Fib retracement levels calculation. Hence, these levels will stand unchanged during the whole time of retracement. So – we know where will be potential support or resistance ahead of time and these levels do not depend on price action during retracement. This is a leading indicator.

    2. Classic support and resistance lines. Here is the same issue – previous extremes and other areas, where market has changed direction will act as support and resistance. So we know them in advance also. They are not as good as Fib retracements, but still, they are leading indicators.

    Pipruit: So, does it mean that we could use a trend line as a leading indicator of potential support or resistance?
    Commander in Pips: I think so. Although personally I do not use trend lines much, in fact, they could be used in this manner. They are also a type of leading indicator – you have the speed of trend line, so you may calculate its value at any time in the future. So the third is:

    3. Trend lines – as horizon as slope.

    What else?
    Pipruit: Well, may be Fib extensions. They also could lead to support or resistance at their target.
    Commander in Pips: Well done, you’re absolutely right.

    4. Fib extensions. By using them, we can easily estimate the targets (when C point has been formed already in AB-CD pattern), and despite the follows price action – extensions will be stable and ahead of time from current price action.
     
    #1 Sive Morten, Dec 20, 2013
    Lasted edited by : Mar 25, 2016
    Hamza Samiullah and fran alvarez like this.
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