Explain Leading and Lagging indicators in detail. Also, give examples of each of them.
Leading indicators attempt to predict and extrapolate or guess or estimate where the trend is heading. If you are in a hundred days of uptrend or downtrend is the hundreds of first, second and third. Probably the chances are if you're in an aggressive uptrend or downtrend, the chances of it being updated the next day are probably going to be quite good or whatever pattern it may be.
Leading indicators predict the potential change in the market in a certain direction before the change happens.
Examples of Leading Indicators:
- Relative Strenght Index (RSI)
- Stochastic Oscillator
- Average Directional Index
Lagging Indicator
The point of lagging indicators is to give you a kind of broad low-noise overview of what has happened in the past to give you an idea of what potentially will happen in the future. That is generally what charting and technical analysis are all about.
The point is that it allows us to see and a nutshell what's happened before and the most important thing is we can use it as a filter. Moving Average like for example, there with the moving average of it so the moving average crossed over. There's your crossover point but prices are already way up and you're like what I'm chasing it.
Traders shouldn't use it as a trigger. I'm not talking about when the price is touching one another but this kind of signals like a moving average crossover or maybe a slow stochastic whatever it may be. If it's lagging, then use it as something different. Use it as a filter.
Examples of Lagging Indicators
- Moving Average
- Bollinger Bands
- Parabolic SAR
With relevant screenshots from your chart, give a technical explanation of the market reaction on any of the examples given in question 1a. Do this for both leading and lagging indicators.
Market Reaction on Leading Indicators
I am going to use Stochastic Indicator. The stochastic indicator is one of the leading indicators. We have a screenshot below.
As you can see on the screen short above that the Stochastic indicator signal is going the same direction as the price movement.
I am going to use Parabolic SAR Indicator. The parabolicic indicator is one of the leading indicators. We have a screenshot below.
As you can see on the above screenshort that the buy and sell signal of the parabolic was come last.
Question 2a
What are the factors to consider when using an indicator?
For traders to effectively use an indicator, the trader needs to understand the trend of the market. As we know that we have two different markets and the techniques on how to use indicators in the two markets are different. For the trending market, there are always particular trends either an uptrend or a downtrend. For the trending market, indicators such as Stochastic, RSI, etc are trend-based indicators, and they are very useful in a trending market
As we talk about a trending market, we also a ranging market where the certain market price is moving back and forth between a higher price and a lower price and does not gives a specific trend. In this type of market, it will be good for a trader to use a momentum indicator to predict the market.
Speaking about the trading strategy. We have two types of traders. We have Scalper and Swing trade. A trader is to choose the trading strategy before they will be able to know the best indicator to use because some indicators are best to use for scalping, while some are best to use for swing trading. So, traders need to know the trading strategy before selecting an indicator.
Traders are to use more than one indicator to confirm a signal giving by an indicator. Some indicators tend to give a false signal. So, it is important two indicators to get an accurate result.
Explain confluence in cryptocurrency trading. Pick a cryptocurrency pair of your choice and analyze the crypto pair using a confluence of any technical indicator and other technical analysis tools. (Screenshot of your chart is required ).
Confluence means the meeting offer merging or convergence. It usually means the meeting of two rivers. In the context of trading, our convergence happens when different technical signals or technical strategies basically merge and gives the same price movement. If you look at a market people view the market through different lenses.
For instance, some people would look at support and resistance levels and buy and sell base on support and resistance. Some people look at trend lines. A trend line support term and resistance and they make decisions based on trend lines. Others would look at the Fibonacci levels, they say if the price retraces to the 61.8% Fibonacci level or 30.2% Fibonacci level, that is strong support I'm going to go along. Others look at candlesticks to decide when the price is going to reverse. So, when different signals all say the same signal that is when we have convergence.
Explain how you can filter false signals from
As you all know that there are no perfect indicators. Indicators are designed to give an idea of the state of the market to be able to predict the market based on past price movements. Therefore, it sometimes gives false signals. The signal gives an idea of whether the market will reverse. Traders can confirm a signal given by an indicator by taking a close look at the candles if correlated with an indicator because sometimes an goes in the opposite trend of the market and therefore give a false signal. If the candle's position correlates with the indicator, that is a true signal. But if it is in the opposite direction, then it is a false signal.
Explain your understanding of divergences and how they can help in making a good trading decision.
As the word divergence implies, divergence is a state where the market of a particular cryptocurrency price movement on the chart shows the exact opposite of what an indicator signal is showing. For instance, if the market is trend up, and an indicator signal is giving a downtrend signal, that is a divergence.
Divergences signal is a very useful signal is to filter out false signals. As useful as divergence signal is, it's also very dangerous for a naive trader to trade on it. To be able to trade on a divergence signal, a trader has to do a lot of backtesting to have a good result.
Using relevant screenshots and an indicator of your choice explain bullish and bearish divergences on any cryptocurrency pair.
Bearish Divergence
Bearish Divergence is when price movement of a certain market is uptrend, and an indicator signal is giving an downtrend signal.
As you can see on the bearish divergence in the chart of the STEEM/USDT pair below.
Bullish Divergence
Bearish Divergence is when price movement of a certain market is uptrending, and an indicator signal is giving an downtrend signal
As you can see the bullish divergence in the chart of the STEEM/USDT pair below.
Hello @supo1 , I’m glad you participated in the 4th week Season 4 of the Beginner’s class at the Steemit Crypto Academy. Your grades in this task are as follows:
Observations:
This is not a clear example of divergence on the chart. You can revisit the lesson to understand how to spot divergence.
Recommendation / Feedback:
Thank you for participating in this homework task.
Downvoting a post can decrease pending rewards and make it less visible. Common reasons:
Submit