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BabyPips.com>School>MiddleSchool>OscillatorsandMomentumIndicators

OscillatorsandMomentumIndicators

Therearetwotypesofchartsindicators:leadingandlagging.Whichonesuitsyoubetter?

LessonsonOscillatorsandMomentumIndicators

Leadingvs.LaggingIndicatorsLeadingindicatorsgivesignalsBEFOREanewtrendorreversaloccurs,whilelaggingindicatorsgivesignalsAFTERatrendorreversal.Butthat'snotall!

HowtoUseOscillatorstoWarnYouoftheEndofaTrendHowdoyouspotatrend?Maybelaggingindicatorscanhelpyouout!

HowtoUseMomentumIndicatorstoConfirmaTrendIsthetrendyou'reinreadytopushforwardorsputterout?

Summary:LeadingandLaggingIndicatorsNowthatyouknowtheprosandconsofboththeleadingandlaggingindicators,whichonedoyouthinkworksbetterforyou?

LearnHowtoTradeForex.ABeginner'sGuidetoForexTrading.

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BabyPips.com>School>MiddleSchool>OscillatorsandMomentumIndicators>Leadingvs.LaggingIndicators

Leadingvs.LaggingIndicatorsWevealreadycoveredalotoftoolsthatcanhelpyouanalyzepotentialtrendingandrangeboundtradeopportunities.Stilldoinggreatsofar?Awesome!Letsmoveon.

Inthislesson,weregoingtostreamlineyouruseofthesechartindicators.

Wewantyoutofullyunderstandthestrengthsandweaknessesofeachtool,soyoullbeabletodeterminewhichonesworkforyouandwhichonesdont.

Letsdiscusssomeconceptsfirst.Therearetwotypesofindicators:leadingandlagging.

Aleadingindicatorgivesasignalbeforethenewtrendorreversaloccurs.

AlaggingindicatorgivesasignalafterthetrendhasstartedandbasicallyinformsyouHeybuddy,payattention,thetrendhasstartedandyouremissingtheboat.

Youreprobablythinking,Ooooh,Imgoingtogetrichwithleadingindicators!sinceyouwouldbeabletoprofitfromanewtrendrightatthestart.

Youreright.

Youwouldcatchtheentiretrendeverysingletime,IFtheleadingindicatorwascorrecteverysingletime.Butitwontbe.

Whenyouuseleadingindicators,youwillexperiencealotoffakeouts.Leadingindicatorsarenotoriousforgivingbogussignalswhichcouldmisleadyou.

Getit?Leadingindicatorsthatmisleadyou?

Haha.Manweresofunnyweevencrackourselvesup.

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"Yesterdayishistory.Tomorrowisamystery.Todayisagift.ThatiswhyitcalledPresent."

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Theotheroptionistouselaggingindicators,whicharentaspronetobogussignals.

Laggingindicatorsonlygivesignalsafterthepricechangeisclearlyformingatrend.Thedownsideisthatyoudbealittlelateinenteringaposition.

Oftenthebiggestgainsofatrendoccurinthefirstfewbars,sobyusingalaggingindicatoryoucouldpotentiallymissoutonmuchoftheprofit.Andthatsucks.

Itskindalikewearingbellbottomsinthe1980sandthinkingyouresocoolandhipwithfashion.

Forthepurposeofthislesson,letsbroadlycategorizeallofourtechnicalindicatorsintooneoftwocategories:

1. Leadingindicatorsoroscillators2. Lagging,trendfollowing,ormomentumindicators

Whilethetwocanbesupportiveofeachother,theyremorelikelytoconflictwitheachother.Werenotsayingthatoneortheothershouldbeusedexclusively,butyoumustunderstandthepotentialpitfallsofeach.

Saveyourprogressbysigninginandmarkingthelessoncomplete!

Leadingvs.LaggingIndicatorsHowtoUseOscillatorstoWarnYouoftheEndofaTrendHowtoUseMomentumIndicatorstoConfirmaTrendSummary:LeadingandLaggingIndicators

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BabyPips.com>School>MiddleSchool>OscillatorsandMomentumIndicators>HowtoUseOscillatorstoWarnYouoftheEndofaTrend

HowtoUseOscillatorstoWarnYouoftheEndofaTrendAnoscillatorisanyobjectordatathatmovesbackandforthbetweentwopoints.

Inotherwords,itsanitemthatisgoingtoalwaysfallsomewherebetweenpointAandpointB.Thinkofwhenyouhittheoscillatingswitchonyourelectricfan.

Thinkofourtechnicalindicatorsaseitherbeingonoroff.Morespecifically,anoscillatorwillusuallysignalbuyorsell,withtheonlyexceptionbeinginstanceswhentheoscillatorisnotclearlyateitherendofthebuy/sellrange.

Doesthissoundfamiliar?Itshould!

TheStochastic,ParabolicSAR,andRelativeStrengthIndex(RSI)arealloscillators.Eachoftheseindicatorsisdesignedtosignalapossiblereversal,wheretheprevioustrendhasrunitscourseandthepriceisreadytochangedirection.

Letstakealookatacoupleofexamples.

WeveslappedonallthreeoscillatorsonGBP/USDsdailychartshownbelow.RememberwhenwediscussedhowtoworktheStochastic,ParabolicSAR,andRSI?

Ifyoudont,weresendingyoubacktofifthgrade!

Anyway,asyoucanseeonthechart,allthreeindicatorsgavebuysignalstowardstheendofDecember.Takingthattradewouldveyieldedaround400pipsingains.Kaching!

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Then,duringthethirdweekofJanuary,theStochastic,ParabolicSAR,andRSIallgavesellsignals.And,judgingfromthatlong3monthdropafterwards,youwouldvemadeawholelotofpipsifyoutookthatshorttrade.

AroundmidApril,allthreeoscillatorsgaveanothersellsignal,afterwhichthepricemadeanothersharpdive.

Nowletstakealookatthesameleadingoscillatorsmessingup,justsoyouknowthesesignalsarentperfect.

Inthechartbelow,youcanseethattheindicatorscouldgiveconflictingsignals.

Forinstance,theParabolicSARgaveasellsignalinmidFebruarywhiletheStochasticshowedtheexactoppositesignal.Whichoneshouldyoufollow?

Well,theRSIseemstobejustasundecidedasyouaresinceitdidntgiveanybuyorsellsignalsatthattime.

Lookingatthechartabove,youcanquicklyseethattherewerealotoffalsesignalspoppingup.

DuringthesecondweekofApril,boththeStochasticandtheRSIgavesellsignalswhiletheParabolicSARdidntgiveone.Thepricekeptclimbingfromthereandyoucouldvelostabunchofpipsifyouenteredashorttraderightaway.

"Ifyoucan'tlaughatyourself,thenwhocanyoulaughat?"TigerWoods

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YouwouldvehadanotherlossaroundthemiddleofMayifyouactedonthosebuysignalsfromtheStochasticandRSIandsimplyignoredthesellsignalfromtheParabolicSAR.

Whathappenedtosuchagoodsetofindicators?

Theanswerliesinthemethodofcalculationforeachone.

Stochasticisbasedonthehightolowrangeofthetimeperiod(inthiscase,itshourly),yetdoesntaccountforchangesfromonehourtothenext.

TheRelativeStrengthIndex(RSI)usesthechangefromoneclosingpricetothenext.

ParabolicSARhasitsownuniquecalculationsthatcanfurthercauseconflict.

Thatsthenatureofoscillators.Theyassumethataparticularpricemovementalwaysresultsinthesamereversal.Ofcourse,thatshogwash.

Whilebeingawareofwhyaleadingindicatormaybewrong,theresnowaytoavoidthem.

Ifyouregettingmixedsignals,yourebetteroffdoingnothingthantakingabestguess.Ifachartdoesntmeetallyourcriteria,dontforcethetrade!

Moveontothenextonethatdoesmeetyourcriteria.

Saveyourprogressbysigninginandmarkingthelessoncomplete!

Leadingvs.LaggingIndicatorsHowtoUseOscillatorstoWarnYouoftheEndofaTrendHowtoUseMomentumIndicatorstoConfirmaTrendSummary:LeadingandLaggingIndicators

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BabyPips.com>School>MiddleSchool>OscillatorsandMomentumIndicators>HowtoUseMomentumIndicatorstoConfirmaTrend

HowtoUseMomentumIndicatorstoConfirmaTrendSohowdowespotatrend?

TheindicatorsthatcandosohavealreadybeenidentifiedasMACDandmovingaverages.

Theseindicatorswillspottrendsoncetheyhavebeenestablished,attheexpenseofdelayedentry.

Thebrightsideisthatthereslesschanceofbeingwrong.

OnGBP/USDsdailychartabove,weveputonthe10EMA(blue),20EMA(red),andtheMACD.

AroundOctober15,the10EMAcrossedabovethe20EMA,whichisabullishcrossover.

Similarly,theMACDmadeanupwardcrossoverandgaveabuysignal.

Ifyoujumpedinonalongtradebackthen,youwouldveenjoyedthatniceuptrendthatfollowed.

Lateron,boththemovingaveragesandMACDgaveacoupleofsellsignals.

Andjudgingfromthestrongdowntrendsthatoccurred,takingthoseshorttradeswouldvegivenhugeprofits.

LearnHowtoTradeForex.ABeginner'sGuidetoForexTrading.

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"Themanwhonevermakesamistakealwaystakesordersfromonewhodoes."

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Wecanseethosedollarsignsflashinginyoureyes!

Nowletslookatanotherchartsoyoucanseehowthesecrossoversignalscansometimesgivefalsesignals.Weliketocallthemfakeouts.

OnMarch15,theMACDmadeabullishcrossoverwhilethemovingaveragesgavenosignalwhatsoever.

IfyouactedonthatbuysignalfromtheMACD,youjustsufferedafakeout,buddy.

Similarly,theMACDsbuysignalbytheendofMaywasntaccompaniedbyanymovingaveragecrossover.Ifyouenteredalongtraderightthenandthere,youmightvesetyourselfupforalosssincethepricedippedabitafterthat.

Bummer!

Saveyourprogressbysigninginandmarkingthelessoncomplete!

Leadingvs.LaggingIndicatorsHowtoUseOscillatorstoWarnYouoftheEndofaTrendHowtoUseMomentumIndicatorstoConfirmaTrendSummary:LeadingandLaggingIndicators

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BabyPips.com>School>MiddleSchool>OscillatorsandMomentumIndicators>Summary:LeadingandLaggingIndicators

Summary:LeadingandLaggingIndicators

Heresaquickrecapofwhatwediscussedinthislesson:

Therearetwotypesofindicators:leadingandlagging.

1. Aleadingindicatororanoscillatorgivesasignalbeforethenewtrendorreversaloccurs.2. Alaggingindicatororamomentumindicatorgivesasignalafterthetrendhasstarted.

Ifyoureabletoidentifythetypeofmarketyouaretradingin,youcanpinpointwhichindicatorscouldgiveaccuratesignalsandwhichonesareworthlessatthattime.

So,howdoyoufigureoutwhentouseoscillatorsormomentumindicators,orboth?

Thatsanothermilliondollarquestion!Afterall,weknowtheydontalwaysworkintandem.

Wellgiveyouamilliondollarsreallysoon

Ohwait!Wemeantthemilliondollaranswer!

Fornow,justknowthatonceyoureabletoidentifythetypeofmarketyouaretradingin,youwillthenknowwhichindicatorswillgiveaccuratesignals,andwhichonesareworthlessatthattime.

LearnHowtoTradeForex.ABeginner'sGuidetoForexTrading.

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"Solongasthereisbreathinme,thatlongIwillpersist.FornowIknowoneofthegreatestprinciplesonsuccessifIpersistlongenoughI

willwin."OgMandino

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Thisisnopieceofcake.Butitsaskillyouwillslowlyimproveuponasyourexperiencegrows.

Besides

Yourenotatitalone!

Inthefuturesections,weregoingtoteachyouhowtocorrectlyidentifytheforexmarketenvironmentyouaretradingintobetterusetheseindicators!

Saveyourprogressbysigninginandmarkingthelessoncomplete!

Leadingvs.LaggingIndicatorsHowtoUseOscillatorstoWarnYouoftheEndofaTrendHowtoUseMomentumIndicatorstoConfirmaTrendSummary:LeadingandLaggingIndicators

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