TECHNICAL INDICATORS - 10% to Tron-Fan-Club

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Today, I will be taking you guys on trading indicators.

Crypto trading has grown to be very common amongst crypto enthusiasts and this growth has led to more newbies getting involved in trading without properly understanding the necessary basics and that is why we will be looking at trading indicators.

INDICATORS

Indicators are numerical calculations that put chart data into mathematical formulas thereby making the chart easy to read and interpret.

There are two types of indicators and they are;

• Leading indicators

• Lagging indicators

LEADING INDICATORS

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Leading indicators are simply indicators that aid traders in spotting the possible price movement of an asset. This type of indicator makes use of old price information in determining the possible price movement of various assets.

The fact that it provides signals before the actual price movement makes it efficient in providing maximum profit for traders who tends to take advantage and scalp profit from all the pips provided by the new price movement.

Leading indicators become efficient in identifying quick signals by mostly identifying overbought and oversold regions because these regions indicators where an asset has been overbought or sold usually leads to a reversal in price.

In as much as leading indicators are good in providing quick and maximum profit for traders, it is not always efficient because traders can fall victim to false breaks outs or false reversals which usually occur due to price manipulations by whales.

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EXAMPLES OF LEADING INDICATORS

There are different types of leading indicators and they include;

• Stochastic

Stochastic which are sometimes referred to as stochastic oscillators are momentum-based indicators that usually identify overbought and oversold regions in a trending market.

They have a marked region usually (80-20) with the 80 mark indicating that the price is already at the overbought region which signals a possible trend reversal. On the other hand, the 20 mark indicates that the price is already oversold and a possible bearish-to-bullish trend reversal is expected.

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• Relative Strength Index (RSI)

The RSI is one of the most used leading indicators and it is actually my favorite. It is used to identify overbought and oversold regions in a way similar to stochastic oscillators but its overbought and oversold regions are marked (70 and 30) respectively.

It is also good at identifying divergences in the market by its ability to provide signals contrary to price action. These signals help in identifying fake reversals and fake breakouts in the market.

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• Fibonacci retracement

Fibonacci retracement is a type of leading indicator that aims primarily at providing future levels of resistance and support. It does this by making use of naturally occurring numbers that are most significant.

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• Donchain channel

This is a type of leading indicator that is used in identifying the highest high and lowest low at a given time and this, in turn, signals a possible trend reversal or breakout.

LAGGING INDICATORS

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Just as the name implies, Lagging indicators are types of technical indicators which provide obvious signals on already existing trends.

This type of indicator waits for the price to clearly take a direction before it releases signals for a trader. Its delay in signal production makes it more immune to false breakouts and false reversals thus helping traders to minimize losses. On the other hand, it does not allow traders the opportunity to maximize profits due to their late entrance to the market.

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EXAMPLES OF LAGGING INDICATORS

There are various examples of Lagging indicators and they include;

• Moving averages

Moving averages are trend-based indicators that aid traders in identifying apparent trend directions by filtering out minor price fluctuations on trends.

They do this by trending either above or below a price chart. When they trend below, they indicate a bullish price movement and when they are found above the price chart, it indicates a bearish trend.

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• Bollinger bands

Bollinger bands are also trend-based indicators that are often used in identifying various highs and lows in an overall market chart. They are also used in determining market volatility based on the distance they create from the mid-line. The wider the distance, the more volatile the market is and vice versa.

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• MACD

The moving average convergence divergence (MACD) is a type of Lagging indicator used in spotting out a make-up of a new trend. It is used often used together with support and resistance regions in other to properly identify the direction of new trends.

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• Parabolic SAR

These are trend-based indicators similar to moving averages but different in the sense that it is often used to identify a change in price direction.

DIFFERENCES BETWEEN LAGGING AND LEADING INDICATORS

We have already explained the meaning of leading and Lagging indicators with examples, here will we be outlining their various differences.

LEADING INDICATORS	LAGGING INDICATORS
Leading indicators are mostly used by scalpers	and Lagging indicators are mostly used by swing traders.
Leading indicators allow traders to use tight stop-losses	Lagging indicators do not permit tight stop-losses.
Leading indicators provide signals before an actual price movement	and Lagging indicators wait for price movement confirmation before releasing signals.
Leading indicators allow traders to maximize profits	Lagging indicators do now allow traders to maximize profits.
Leading indicators are prone to fake breakouts and reversals	and Lagging indicators are more immune to fake breakouts or reversals.
Leading indicators allow traders to make quick profits	Making profits while using Lagging indicators demands patience.
Traders who make use of leading indicators usually trade on lower timeframes	Traders who make use of Lagging indicators usually trade on a higher timeframe.
Leading indicators are mostly momentum-based indicators	and Lagging indicators are mostly trend-based indicators.
Leading indicators are more efficient for small capital traders.	Lagging indicators are mostly used by big capital traders.

CONCLUSION

The use of indicators in trading has been proven to be very efficient with some traders relying more on either leading or Lagging indicators but it is always best to combine both in other to maximize profit and minimize loss.