Saturday, November 25, 2017

How To Use Forex Lagging Indicators

April 22, 2010 by  
Filed under Fx Indicator

Do you know that the forex indicators are categorized into 2 main groups namely lagging and leading.

A lagging indicator usually shows you something that has already happened. Imagine you are using the lagging indicators to tell the trend of the market. By the time it signals to you that the trend is UP, the trend has already began and you are already in it causing you to miss the chance to ride the trend at the very beginning.

In this post, I will be focusing on lagging indicators and I will then talk about the leading ones in my next post.

Examples of lagging indicators are

These 2 indicators can only be used to help you identify trends that has already established.

Lagging Indicator Example

From the above picture, the trend is UP when the faster moving average cuts above the slower moving average. Similarly, when there is bullish MACD crossover, it is also a sign that the trend is UP.

You may be thinking in your mind now that you will be able to spot the start of a trend at the very beginning using the leading indicators and all you have to do is to ride it to profit.

I will tell you that the answer is partly YES and NO.

Yes, the leading indicator will be able to tell you when a trend is starting so that you can profit from it but they usually produces a lot of false signals known as fake outs which is the number one killer of new traders. If you are going to trade with the signals, you may get more losses than wins.

Although the lagging indicators can only tell you the trend when you are in it, it is more reliable and do not produce much false signals. Therefore most traders will choose to use a combination of both lagging and leading to help them in their trades.

To find out more about the leading indicators, stay tune as I will be writing a post on it next week.

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Comments

5 Responses to “How To Use Forex Lagging Indicators”
  1. Lawal says:

    Hello Kelvin. i have been your subscriber for quite a while now.I have been seaching for indicator(s) that i can use to get at least 5pips and also get te timing correctly. say in the next 5minutes price will go up or it will come down. i have use 20 and 50 EMAs but i found out that many times, when the EMA crossed, it may take time for it to respond and as such i dont really get the time frame correctly. although, it does work well for me when i trade forex and i dont have to use time frame. What do you think? base on your experience, do you think i can find an indicator that i can use that actually gives time frame and trend at the same time?

    • Kelvin says:

      In fact all indicators are able to give you at least 5pips but the problem lies in the false signal that they are producing. In trading there is no way you can get the market to respond immediately as it is something that is driven by people.

      Theerefore there will always be some lag between the signal and the movement. That is why you need a combination of a few indicators to give you the entry signal.

  2. Rockdrop says:

    Kelvin,

    So if I would like to trade when I am only online (4-8 hours a day) and trading with the trend is my strategy, Would you recommend using 2 EMA’s only for trend checking at a 1 hour chart and Entry point checking at 5 min chart? I’d like to keep my strategy as simple as possible.

    RockDrop

    • Kelvin says:

      Hi pal

      4 to 8 hours a day is a lot already and trend trading is something that is very profitable if you are able to execute it well. This is my personal opinion, I feel that 2 ema is too fast and will create a lot of false signal. On the other hand, it also gives you more trading opportunity. You have to weigh the difference.

      I like your idea of entering using lower time frame as it can definitely give you better entry position but hourly and 5 minutes are a bit too far apart. If you are trading off the hourly chart, maybe you can consider using the 15 minutes as entry.

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