Technical analysis uses charts and indicators to predict
the future direction of the market. As a trader, you must
master both how to read the different charts as well as how
to use the different technical indicators. Technical
indicators are basically of two types: 1) Leading and 2)
Lagging. Understading how to use both the leading and
lagging indicators can give you the edge as a trader. Some
of the these indicators are highly useful and considered to
be an important weapon in the hands of a skilled and savvy
trader.

Now as the name implies, leading indicators are ahead of
the market. They provide buy and sell signals prior to the
new trend or a reversal in the trend occuring. Now, one of
the most important leading indicator that your should be
familiar with is the pivot points. Pivot points are used in
stock, forex, futures or any other market. But when used
alone these leading indicators can provide false signals.
Other leading indicators are the oscillators like the RSI (
Relative Strength Index), stochastics and so on.

On the other hand, the lagging indicators as the name
implies lags the market price action and provide
information after a trend has started or a reversal in the
existing trend has taken place. So, lagging indicators
provide trading signals that are often late. Sometime too
late for you to join the new trend because most of the
profit is already lost. One of the most simple but highly
popular lagging indicators that is widely used by traders
in different markets is the Moving Average. Moving Averages
can be simple or exponential. Other popular lagging
indicator is the Moving Average Convergence Divergence
(MACD).

Stochastics is a very popular leading indicator widely used
by traders in different markets. Stochastics uses a complex
statistical formula to give a overbought or a oversold
signal. This indicator has value from 0 to 100. When it
touches the 80 level from below, the market is thought to
be overbought and when it touches the 20 level from above
the market is considered to be oversold.

However, MACD ( pronounced Mac Dee) on the other hand is a
lagging indicator. MACD uses three exponential moving
averages 12,26 and 9. 12 exponential moving average is
faster. 26 exponential moving average is slower. The 9
exponential moving average gives their difference.

Now, professional traders combine the stochastics with the
MACD on 1 Hourly charts to identify the trend for the day.
What you need to do is master the use of these leading and
lagging indicator combination!

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