A nice Leading Indicator

A Nice Leading Indicator

Have you ever said, “Wouldn't it be nice if someone (or something) would give me a warning before an event occurred rather than after that event happened.”

Having a “head's up” before prices change direction would be mighty nice, would it not? Well, there is such a tool as a “Leading Indicator” which if used properly will give you fair warning that changes are coming.

Some Examples

Take a look at this one minute chart on the EUR/USD pair.

http://tinkerpaw-software.com/images/fig_1.gif


Figure 1.1

Notice that most of the time the BLUE line crosses the RED line before the price changes direction. Sometime the cross happens at the same moment price changes direction, but that is still a good indicator.

The first two yellow circles show crosses that happen 5 minutes before the price changes. The rightmost yellow circle shows a cross that happens just as the price turned.

Look at the following AUD/USD 15 minute chart:

http://tinkerpaw-software.com/images/aud-15.gif
Figure 2-2

Here you see 4 yellow circles highlighting 4 different changes of direction, each one giving at least 15 minutes of advanced warning that a price change was in the works.

Setting up the Indicators

First, place a MACD indicator on the chart of your choosing. Next open the “Navigator” by typing a CTRL+N, or selecting Navigator from the “View” menu. Next expand the “Indicators” tree list. Now, put the cursor on the Commodity Channel Index indicator and drag it on top of the MACD window in the chart. If you do this correctly you will get a window where the CCI indicator is superimposed on top of the MACD indicator.

Next, set the MACD values as follows:

Fast EMA = 12
Slow EMA= 26
MACD SMA = 1

and set the colors to something bright and easy to see. Red over silver seems nice.

Now set the CCI period to 26 and apply to Meddian Price (HL/2). Again, set the color to something bright, such as light blue.

Summary

There you have it. The CCI over the MACD will give you a decent leading indicator that you can rely on to warn you of impending changes in price direction.

NOTICE: You should not use this indicator for buy or sell signals since its purpose is to warn you of price changes, not pin point the moment changes occur. Indeed, these warnings most always come several minutes (or longer) in advance. A use of other reliable indicators will help generate buy and sell signals.

Actually, after the warning cross, I then watch for the MACD to turn direction for an entry or exit point.

Good luck to all you PIP happy traders,

Tom Trader

Nice

Thanks for sharing

Thanks for sharing your suggestion. What should I apply to for MACD? Close, open, HL/2, median, typical, weighted?

Is your indicator best used on 15M chart only or can it be used on other TF's based on your past experience?

Seems Interesting, What is the Time frame you are using

Further Review of the chart shows that you can keep the contract alive without worrying what should be the stop loss, of course entry signal will be the traders choice. I like to work this with my entry signals

@tom trader thanks for sharing your indicator. i use mine on 15m chart (tom trader is in the best position to give the best TF from his experience) apply MACD settings Fast EMA = 12 Slow EMA= 26 MACD SMA = 1 Close, open, HL/2, median, typical, weighted apply to CCI (settings: 26) and not to MACD

Now set the CCI period to 26 and apply to Meddian Price (HL/2)

Channel repaints as hell and the other MA type indicators are lagging as usual.

Well I will have a go this indicator. It seems to be simple and good. So far I tested more tricky method and no good result. Thx Tom

will test it , thanks for sharing

See the 0 level on the right of your indicator window (the 0 corresponds to the MACD value)? It is not equidistant from the 150 and -150 values above and below it (which correspond to the CCI values). I would have thought that for the system to be consistent (it might still be profitable), both the MACD and the CCI must be fixed to the same zero point and scale. All that is happening now is the MACD and CCI are graphically represented so they both fit nicely into the window, so I wouldn't place too much confidence in this 'cross' until you have it tested out properly.

how long this been tested anyways???

Will try to answer all your questions in one fell swoop, so here goes.

First, please understand that the Leading Indicator setup (I'll call it "LI") is NOT intended to generate buy or sell signals. DO NOT use this indicator to trade by. As I said, the LI is to give you a warning that a change in prices may appear soon. This does NOT guarantee that a change will happen, or how soon it may happen.

A leading indicator is just that. Something that leads the way just as a reconnaissance scout goes out in front to scope out the situation. The LI looks ahead and warns you when something is about to happen. In this case, that something is a probable change in price direction.

Please don't try to make this indicator into more than it is.

Next, LI works for all time frames. However, you may find that setting the CCI period to 89 works better on H1, H4, D1, and longer period charts. The CCI setting of 26 works good on M1, M5, M15 & M30 charts.

I use LI on M1, M5, and M15 charts mostly. Just apply it to whatever time frame you like to trade on.

To Birdt:

>both the MACD and the CCI must be fixed to the same zero point and scale.

That would be nice. Personally, I do NOT know how to do that.

>(it might still be profitable)

Again, I repeat, do NOT trade this indicator. It is not meant to be profitable. It is meant to give you a warning and ask you to pay attention because other indicators may give you a buy or sell signal soon.

Good trading to all of you,

Tom Trader

hey how do i set this up on alpari ?

Nice tip, it works with MACD and ADX also, to show when a price move have more strength try it​

Nice tip..wonder about how effective it will be on longer TF's..

what I have noticed, everything is more reliable and effective the higher you go, so not for action junkies

Before

After

Please can you attach these image I don't know why but these links are not opening on my side. I'm not a great fan of indicators but MACD is something that's always attracted to me so I want to check this a bit.