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At 06:01 AM 11/16/98 -0800, you wrote:
>you're not trading t-bonds without indicators. you're using pivots and
>fibo's, two of the oldest lagging indicators around. why lagging?
>because as you rightly pointed out in prior posts, all common
>indicators are lagging because they are based on past price action,
>
The above is a common misunderstanding about the
definition of leading and lagging indicators. Based on this,
would leading indicators be based on FUTURE price action?
Or what?
The following explanation of leading/lagging
is copied with permission from the client member-only
web pages at http://www.fibtrader.com
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I've had a few people ask about the definition of "leading
indicators" recently.. Below is my reply to someone's
question about this, in the hope that traders who are
new to DiNapoli techniques will also benefit from this..
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Hello,
I need a little help from you. I´m running constantly into
problems when trying to decide which indicators are
leading and which are lagging. Could you please just
list some, so I get a clearer picture of leading and
lagging (I guess I´m lagging on this)
Thanks in advance - (Name withheld)
Hello (Name withheld),
Any indicator which issues a signal AFTER price has moved,
is a lagging indicator. MACD, Stochastic, RSI, Moving
Averages etc, as these are commonly used are lagging.
Leading indicators (attempt to) tell you where prices
will go (or turn/find support/resistance) BEFORE they
get there. Leading indicators are predictive (though not
reliable for mechanical/blind trading). It's fair to say
that leading indicators usually require subjective
human interpretation, which is why novice traders
have difficulty with them, and popular charting
packages do not feature them.
Examples of leading indicators are Gann, Elliott,
Fibonacci, Astrology, price patterns (such as Triangles,
Double-RePo's, Head-and-shoulders), and price pattern
failures (Head-and-shoulder failure for example) etc.
I use Fibonacci, price-patterns, and price-pattern
failures all the time. For me, trading without leading
indicators is like flying an airplane in fog without instruments.
Combining leading and lagging indicators across
multiple time-frames is very powerful. Also, leading
indicators are valuable in deciding when to fade a
common lagging indicator. For example, you know that
the blind followers of the common Stochastic 25/75 will
be on the wrong side of the market on the first false
signal that Stoch gives near major Fibonacci
support/resistance (they will drive price right to a
Fib level, where your entry order is, then they will be
scrambling to reverse just as you are taking a profit)....
Best wishes,
-Neal.
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Neal on the 'net.
Trade well. Train hard.
http://www.halcyon.com/neal/
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