In this lesson we will analyze in detail the use of indicators in the charts. We want you fully understand the strengths and weaknesses of each indicator so that you are able to determine what works for you and which not.
Indicators leading indicators vs. Forex lagging indicators
Discuss some concepts first. There are two types of indicators:
- A leading indicator or protagonist gives a buy signal occurs before the new trend.
- A lagging indicator gives a signal after the trend has begun.
You must be thinking that you make your fortune with the leading indicators because these indicators will be able to predict a new trend just in its infancy. The problem is that the signals are not correct all the time.
When using indicators players, you will experience many false signals.
The other option are the delayed indicators, which are less prone to false signals. The indicators provide only delayed signals after the price change clearly is forming a trend.
The bad thing about them is that operations will be opening a little late. Generally, the biggest gains of a trend occurring in the first bars, so we use an indicator of this type can make you lose much of the potential gains.
Oscillators and trend-following indicators
For the purpose of this lesson, we will organize all of our technical indicators into two broad categories:
- Oscillators
- Speed indicators
Oscillators are indicators protagonists.
The speed indicators are lagging indicators.
While both can be supported from one another, tend to conflict with each other. We do not say that the use must be exclusive of only one of the two types, but if you understand the potential pitfalls of each.
