Leading Indicators – How to Read Them
A road map shows us where we are at any one time and how we can get to where we want to go, whereas a weather map shows us the weather at present and also the weather we can expect over the next few days.
But neither the road map nor the weather map is much use to us if we do not know how to read them.
It is the same with reading the price charts. All the information we need to trade profitably is contained within the charts, right there before our eyes, but only if we know how to read and interpret these charts. We can all read what happened in hindsight, this is easy; it’s plain to see on the left hand side of the chart. But what is likely to happen in the future, where might the market go next? If we could see with some degree of clarity what may well happen in the future, then we are in a position to trade profitably.
Trade With Precision teaches two main trading strategies that both employ the principals of reading the charts and predicatively interpreting the price outcome. In other words, finding high probability trade setups that we can trade for profit.
One such tool is called a Leading Indicator. So called because of its ability to predict the future price movement. In this case, applying the conventional indicator, the standard MACD and RSI indicators, but interpreting this indicator correctly to anticipate what might happen next. Once this skill is mastered, then reading and interpreting the use of leading indicators comes into its own by not only finding profitable trades to take but also keeping us out of unprofitable ones as well.
Here on the USDJPY chart a flat level has formed in an uptrend along the blue line and marked by three red arrows. By taking a vertical line down from each arrow to the MACD and RSI indicators, shown along the bottom of the chart, it can be seen that whilst the price was at the same level (along the horizontal line on the chart) both the MACD and RSI indicators were in fact rising upwards showing a sequence of higher highs. This is a clear signal that the price is about to move upwards and this did happen.
On the 23rd October 2014, this trading opportunity was broadcast to our Precision Perspectives Membership (PP) ahead of the move and our members were able to benefit from the ability to correctly analyse and apply the interpretation of this leading indicator.
Here on the AUDCAD there appears to be a very similar set up with three touches along a flat level contained within an uptrend, suggesting a trade to the long side. But note what is happening on the MACD and RSI indicators directly below these touches. The indicators are tracking downwards giving fair warning of a price move to the short side.
This is exactly what happened in the subsequent price move. The correct interpretation of the leading indicators prevented a losing trade from being entered.
To conclude, Trade With Precision teach a broad range of chart interpretation methods and one of the most powerful tools we teach is the use of Leading Indicators.
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Regards,
The TWP Team
www.tradewithprecision.com
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