Technical indicators can either be leading or lagging.

Leading indicators predict future price movements and lagging indicators confirm long term trends by filtering out short term price movements, often referred to as noise

Both technical indicators, leading and lagging have their advantages and disadvantages but combined with the fundamentals they can improve a trader’s performance.

The relative strength index (RSI) is one of the main leading indicators on my list


RSI, a momentum technical indicator oscillates between zero to one hundred. So an overbought market is indicated by an RSI above 70, which supports the view that a sell-off might be imminent.

Conversely, when the RSI sinks below 30 this suggests the market is oversold and that a relief rally could be ahead. The RSI often turns green (oversold) when it falls below 30 and red (overbought) when it is above 70, on many trading platforms.

It is best to use RSI with other indicators since there is no guarantee that when the threshold levels are reached prices will rise or fall as indicated by the RSI.

The stochastic oscillator, also high on my list of technical indicators is another forward indicator comparing recent closing prices to the previous range

As Darren Winters explains, the stochastic is a market momentum indicator that often changes direction before volume or price, so it can be used to predict the direction of market movements.

When the stochastic oscillator reaches 80 or over, the market would be considered overbought, while anything under 20 would be thought of as oversold. But the Stochastic oscillator, as with other forward indicators, can also give false signals if the price is in a long term trending position.

The on-balance volume (OBV) is another leading momentum-based indicator and high on the list of main leading technical indicators

When price action moves on volume then the trajectory tends to have traction. OBV focuses on trading volume to give traders an indication of the market price going forward.

OBV can help traders to determine whether the price is going to reverse or continue on its trend.

So at resistance & support price levels OBV reverses sharply, which can often indicate changing price trends. But in highly liquid markets, like Forex’s main currencies, OBV can also give false signals.

The main lagging technical indicators, use to filter out noise from short term price movements and confirm long term trends are moving averages, The MACD indicators, and Bollinger bands

All of the above lagging indicators can be useful in determining trends and changing trends.

Technical indicators can be more beneficial for traders when they are used together and less so when used in isolation

Darren Winters concludes that when most of the  leading and lagging indicators give the same signal then the probability of profitable trading on technical indicators improves.

See a technical summary giving buy, sell, and neutral signals with different time intervals. 

You can learn more about trading at your own pace.

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