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What's the Best Leading Technical Indicator?

Discussion in 'Forex Trading Systems and Strategies' started by Music Man, Nov 17, 2009.

  1. Music Man

    Music Man Corporal

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    We all know that momentum indicators tend to be lagging indicators. What indicators do you use for leading indicators?

    A leading indicator would be one that signaled the direction of price movement at least 1-2 bars before it happens.

    Any suggestions?

    MM
     
  2. Forexwatchman

    Forexwatchman Sergeant

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    From what I've personally gathered the list would go Stochastics, RSI, CCI, Fractals used in conjunction with the Alligator Indicator. Perhaps you could narrow those down to a top 2 or 3 since you have also got to have some sort of lagging indicator as well. Personally I have the most experience with the alligator although I had not realized the effectiveness of it combined with the fractals and then also the Stochastics.
     
  3. Music Man

    Music Man Corporal

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    Hmmm.... I've been experimenting with a system that uses CCI as the leading indicator and Stochastics to confirm. The cool thing about it is that it can nail those big move bars, instead of kicking in to trade the aftermath. The not so cool thing is sometimes, it's wrong, but I've been working on improving the order management to help in that case.

    Thanks,

    MM
     
  4. an2

    an2 Recruit

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    hi forexwatchman... you said that you have experience with alligator. I just have a question. Until now I really don't understand how to filter bad trades by using AO and alligator. For such method as twin peak, saucer, AO cross... do we really need alligator as the reference? For example; twin peak buy and it's under AO zero line... the price is still below alligator... can I take the trade even the hit point is under the alligator?

    Hi music man.. sorry for intervene your thread.

    Thanks!
     
  5. Awais Rasheed

    Awais Rasheed Private, 1st Class

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    I would surely go for RSI and Stochastic.
     
  6. Ricex

    Ricex Sergeant

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    Support & resistance are very predictive the best out there, followed by Fibonacci which is pretty much the same thing.
     
  7. Forexwatchman

    Forexwatchman Sergeant

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    Since writing that I have developed a website that goes into much detail about using the alligator a well as the other indicators that I use and trades that I make. Check it out here for more details. The alligator that I use is completely different from the Bill William's one. It combines both EMA (leading) and SMA (lagging) and therefore helps in filtering out those false signals.

    For the purposes of this forum though, and to answer your question, there is always going to be those false signals that come up with any leading indicator, but it's less likely to occur when you use them in conjunction with a lagging indicator. I don't even use the fractals part, its just something I've heard works well in conjunction with the alligator. The best lesson I learned when it comes to not getting tricked by your leading indicator is to stay in touch with what's going on fundamentally with whatever currency pair you are applying it to. That means up-to-date analysis of the most recent news events as well as the upcoming ones since in today's economics even minor good/bad news has a big effect, and then apply that to what your indicators are telling you.

    If the fundamentals and technicals don't agree, stick to the technicals but use smaller lots and strict money management. If the fundamentals and technicals do agree, go for it!!!
     
  8. ernest8fingers

    ernest8fingers Master Sergeant

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    PA at S/R

    "Support & resistance are very predictive the best out there"- I agree and thats all I use. Thats it. Kept me in the game for several years now. After all the Indicators(lagging or otherwise)have been tried - its PA ,near levels of S/R ,that have been the most consistent in predicting short term price movement-IMO. Only time/experience will convince though. I always did love tinkering with Indicators-it helped distract me from the crippling losses I sustained while using them.
     
  9. Music Man

    Music Man Corporal

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    Overall, I have to agree that PA and Fibonacci lines are the most reliable. There isn't an averages-based indicator that I've tried in months of software development and back testing that I haven't seen provide false signals.

    One interesting thing I have discovered is that in past years, some indicators were very good indeed, but no longer. Possibly, the expansion of computer-based technical indicators and retail Forex trading has fundamentally altered market dynamics to the point that older statistical methods just aren't what they used to be, so far as market prediction is concerned.

    MM
     
  10. Forexwatchman

    Forexwatchman Sergeant

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    Good points guys, and I just want to expand on those points. I didn't mean to give the wrong impression that I use loads of technical indicators in my trading strategy. I think 90% are harmful to newbie traders and only distract from them being able to quickly grasp a disciplined strategy. Most newbies read up on an indicator for all of 30 minutes before religiously applying it to their trading strategy and get frustrated by the lack of actualized profits and think the whole forex industry is a scam.

    In order of importance I use: Support/Resistance lines and fib.'s (for trending markets only), Pivot Points, Moving Averages with envelopes, and always stay up on the fundamental analysis (news). These are really what I mean when I use that broad term Indicators.
     

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