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  • #101
  • Jul 12, 2011 12:32am Jul 12, 2011 12:32am
Quoting Fudomyo
hi Custos,

I think it's the wording that gets confusing. A indicator like the RSI is showing a change in momentum not actual trend change, and this often happens before a support or resistance level is hit.

So, it can be said to be "leading" because momentum change proceeds trend change.
Okay, I can agree with that. RSI is showing the momentum change of the LAST few bars. But that doesn't mean that it is indicating the future. It just shows what happened in the past few bars.
But I still don't think it is a leading indicator. If we look at economic leading indicators, we can see that they really lead the economy. They are not a derivative of gdp for example. Take building permits, inflation or unemployment rate. Pretty much all of them are leading the economic activity without being a derivative of it.

I guess I just have a problem with the notion that a derivative of something should be leading the underlier itself. Of course I know that derivatives can show changes of momentum in the LAST few bars, but that does in no way imply that it is showing the future or leading the underlying instrument.
  • #102
  • Edited 6:08am Jul 12, 2011 1:08am | Edited 6:08am
Yes, fundamentals drive the market, so are a leading indicator.

In the long term, the health of sovereign nations drives the value of their currencies, but in the shorter term, supply and demand effects market mechanics. No chart tool is predicting the future. If an indicator is flagging exhaustion on a move, then it's useful.

I've only met a couple of great fundamental traders. Perhaps because the variables inherent in understanding what is affecting price for each side of a pair has second and third order effects that aren't apparent to most traders.

As far as RSI is concerned, I see it much more as a range tool than a trend tool, so it's more reliable under certain market conditions.

Nuance is a great part of knowing how and when to apply certain metrics.

I think the discussion often goes astray because there are people who are looking for magic bullets and there are none. But that doesn't imply that certain tools aren't useful either.

Quoting Custos
Okay, I can agree with that. RSI is showing the momentum change of the LAST few bars. But that doesn't mean that it is indicating the future. It just shows what happened in the past few bars.
But I still don't think it is a leading indicator. If we look at economic leading indicators, we can see that they really lead the economy. They are not a derivative of gdp for example. Take building permits, inflation or unemployment rate. Pretty much all of them are leading the economic activity without being a derivative of it.

I guess I just have a...
  • #103
  • Jul 12, 2011 1:10am Jul 12, 2011 1:10am
Quoting Custos
how can any indicator, that is a derivative of price and averaged across the last few bars, be leading price? I never understood that and probably never will.

Maybe you can enlighten us.
a leading indicator isn't a crystal ball that predicts future price, and it doesn't have to be averaged across the 'last few bars' (that's being a little constrictive)

a set of stop lights is a leading indicator when most people consider it to be a lagging indicator. you see the light go red so you stop, or it goes green and so you go... clearly this would seem to be a lagging indicator, and used this way it IS a lagging indicator. you see something, and then you react to that something that just occurred.

but you can use a set of stoplights as a leading indicator as well with just a little bit of thinking from an altered perspective. when the light goes red you can presume that traffic ahead of you and behind you will stop and cars from a different direction will begin to move... it doesn't indicate which set of traffic will begin to flow, it merely suggests that a different lane will begin to flow. most of the time this holds true, but then you get times when someone has triggered a pedestrian crossing and so in this instance no traffic flows and some douche strolls across the road with their ipod in their ears and their thumb up their butt. nothing is ever set in stone.

when the light in your lane goes green you can presume that traffic in your lane is again going to move. this doesn't take into account a broken down vehicle in front of you though, so it's not a certainty, it's just a likely possibility. a green light in your lane also suggests to you that other traffic that would otherwise crash into you will now stop and let you proceed, but this doesn't mean some drunk idiot won't run their red light and t-bone your car.

do you specifically trade particular times of the day and not others? if you do, and it's not simply due to being awake at those times, then it's likely that you trade these particular times due to knowing the price is more likely to move during these times and not during other times. it's not predicting the price values, it's only assuming a potential of price getting somewhere and not idling. looking at a few days worth of hourly charts would generally reveal when it's worth trading and when it's not, so in this case you can consider the hourly chart in it's own right to be a leading indicator of momentum when you regard it in a manner other than simply price equaling some value at some time. looking at an hourly chart and getting an idea of when price shows momentum doesn't guarantee movement or knowing future prices, it simply suggests a more likely potential of movement instead of likely idling.

two lines crossing each other doesn't mean shit. you, me, and everyone else with a sponge between their ears knows this. it's the muppets with their super duper backfitted ema holy grail cross systems who don't know which way is north.

now, after all is said and done i'm not suggesting RSI is a leading indicator or can be used as one. i don't know one way or the other because i've never used RSI. this doesn't change the fact that some people don't know what they are talking about when they talk about leading indicators. at least you asked what one is and wanted to learn something new unlike others who would rather act ignorant and talk shit like usual.
Congratulations ScalaFX for coming out of the closet!
  • #104
  • Jul 12, 2011 1:12am Jul 12, 2011 1:12am
Quoting Fudomyo
Yes, fundamentals drive the market, so are a leading indicator.

In the long term, the health of sovereign nations drives the value of their currencies, but in the shorter term, supply and demand effects market mechanics. No chart tool is predicting the future. If an indicator is flagging exhaustion on a move, then it's useful.

I've only met a couple of great fundamental traders. Perhaps because the variables inherent in understanding what is affecting price for each side of a pair has second and third order effects that aren't apparent to most...
yep, that is a different story, that there are people looking for magic bullets. This is actually why I wanted to emphasize that the RSI like all other technical indicators are only showing the past, not the future. So, that people understand that it is lagging like all other derivatives of price are.
  • #105
  • Jul 12, 2011 1:14am Jul 12, 2011 1:14am
Quoting nubcake
a leading indicator isn't a crystal ball that predicts future price, and it doesn't have to be averaged across the 'last few bars' (that's being a little constrictive)

a set of stop lights is a leading indicator when most people consider it to be a lagging indicator. you see the light go red so you stop, or it goes green and so you go... clearly this would seem to be a lagging indicator, and used this way it IS a lagging indicator. you see something, and then you react to that something that just occurred.

but you can use a set of stoplights...
yes, I can agree with that. It shows potential of price moves, like other setups do.
  • #106
  • Jul 12, 2011 1:24am Jul 12, 2011 1:24am
Quoting Custos
yep, that is a different story, that there are people looking for magic bullets. This is actually why I wanted to emphasize that the RSI like all other technical indicators are only showing the past, not the future. So, that people understand that it is lagging like all other derivatives of price are.
Everything is derivative. I don't know a single thing in the world that's truly predictive.

And especially in trading it's all reactive imho.

What makes something a leading indicator is it's ability to formulate a probabilty for change based on a measuring past conditions against current ones.

Fundamentals are based on measuring past conditions against current conditons, and using that comparative analysis to formulate a probability as well.

Neither of these are actually predicting the future.
  • #107
  • Jul 12, 2011 1:27am Jul 12, 2011 1:27am
Quoting Custos
yes, I can agree with that. It shows potential of price moves, like other setups do.
that's the difference between having your eyes open or not. when you start chipping away at what is likely not going to happen all you are left with is what might happen... this is different to saying what "will" happen.

i can walk outside and see blue skies and assume it's not going to rain and i can walk to the shops and buy my new Porsche. it's likely that it's not going to rain and i won't need a raincoat, but this doesn't preclude the possibility of someone skydiving above me and having their shoot fail and land on top of me killing me. you can go to a new city and see a sidewalk and assume that you will mostly see people walking there, but sometimes you'll see bikes and skateboards and rollerblades and wheelchairs and one-legged people and so on. you can't predict the next person, you can only assume not to see cars and aeroplanes and so on.

the weather bureau can only base their future predictions of weather based on previous weather. they can't guarantee the actual future weather, only make assumptions and reduce the possibilities down from the highly unlikely to what is more probable.

anyway. point made. /rant
Congratulations ScalaFX for coming out of the closet!
  • #108
  • Jul 12, 2011 1:33am Jul 12, 2011 1:33am
Quoting Fudomyo
Everything is derivative. I don't know a single thing in the world that's truly predictive.

And especially in trading it's all reactive imho.

What makes something a leading indicator is it's ability to formulate a probabilty for change based on a measuring past conditions against current ones.

Fundamentals are based on measuring past conditions against current conditons as well, and using that comparative analysis to formulate a probability.
yeah, I can agree with fundamentals even being lagging. I guess the big difference is, that the fundies I mentioned can CAUSE gdp to change, while the rsi is not the cause of price change but the result of price change.

For me leading means that one variable causes another variable to change. Maybe the connotation I associate with that word is wrong. But if we go with that notion then the rsi can't be the cause of future price change.

Question is what truly leads price or causes price to change? What I can think of is opinions of market participants, fundamental changes and irrational mass behavior. Very likely there are many more that really cause price to change, but technical indicators are not one of them.

EDIT: that is all my opinion of course.
  • #109
  • Jul 12, 2011 1:43am Jul 12, 2011 1:43am
Quoting Custos
yeah, I can agree with fundamentals even being lagging. I guess the big difference is, that the fundies I mentioned can CAUSE gdp to change, while the rsi is not the cause of price change but the result of price change.

For me leading means that one variable causes another variable to change. Maybe the connotation I associate with that word is wrong. But if we go with that notion then the rsi can't be the cause of future price change.

Question is what truly leads price or causes price to change? What I can think of is opinions of market participants,...
I see what you're saying now and completely agree with your point.

I was using the word leading in a different context, of something signalling a probability prior to directional change.

If anyone believes an RSI or any other indicator is causing price to change that would be pretty hysterical.
  • #110
  • Jul 12, 2011 1:54am Jul 12, 2011 1:54am
Quoting Fudomyo
I see what you're saying now and completely agree with your point.

I was using the word leading in a different context, of something signalling a probability prior to directional change.

If anyone believes an RSI or any other indicator is causing price to change that would be pretty hysterical.
yeah, the word "leading" is pretty vague I guess.
  • #111
  • Jul 12, 2011 1:58am Jul 12, 2011 1:58am
Quoting Custos
For me leading means that one variable causes another variable to change. Maybe the connotation I associate with that word is wrong. But if we go with that notion then the rsi can't be the cause of future price change.
for you, and maybe a few others, try replacing in your mind the words "leading indicator" with "unlikely probabilities reducing indicator". the indicator won't tell you what will happen, it will simply remove what is unlikely to happen at some point in time.

Quote
Question is what truly leads price or causes price to change? What I can think of is opinions of market participants, fundamental changes and irrational mass behavior. Very likely there are many more that really cause price to change, but technical indicators are not one of them.

you will get a whole camp of fibo warriors tell you how their fib indicator is a leading indicator and that fibs are self-fulfilling prophecies and santa clause is real. does x cause y, or is x just a convenient excuse to describe why y happened?

you are too caught-up crystal-balling. a leading indi doesn't have to indicate what will happen or what causes something to happen and doesn't have to BE the cause of something happening, it merely needs to suggest a trend of sorts. maybe just consider it to be data mining looking for current consistent trends in particular behaviour.

a trendline could be considered to be a leading indicator. it's revealing a particular tendency... not necessarily a particularly great tendency or one that will provide much of an edge if not considered in context, but still it frames a behaviour over a set time period. it doesn't mean price won't immediately do something retarded, or that price will 'bounce' off the trendline like so many chart artists would hope and wish for. a drawn trendline is merely a visual representation of a particular behaviour and nothing more. most people want to crystal-ball it and expect price to bounce off the trendline they draw on their charts (oh, it's self-fulfilling. didn't you know? ). clearly this is pure folly. it's merely suggesting where price isn't tending to go.
Congratulations ScalaFX for coming out of the closet!
  • #112
  • Jul 12, 2011 1:59am Jul 12, 2011 1:59am
I remember the guy several years ago that won a Mini in one of the trading competitions. Had a higher TF ma cross and then went lower TF ma cross for trades. He won the thing against all comers.
  • #113
  • Jul 12, 2011 2:10am Jul 12, 2011 2:10am
Quoting Custos
... But if we go with that notion then the rsi can't be the cause of future price change.

Question is what truly leads price or causes price to change? ...
Right, RSI cannot be cause of future price change...RSI is consequence...

Market perception of value for certain market leads price to change...
The Market pays you to be disciplined
  • #114
  • Jul 12, 2011 2:13am Jul 12, 2011 2:13am
possibly my final point on this is as follows :

a leading indicator doesn't say what to do, it suggest what NOT to do. that's a big difference.

do you go to a bikini competition and bet on the fat drunk guy wearing a two piece with one nut hanging out? he entered the competition because he is flat-out drunk and thinks he is funny. common sense in this situation would suggest that you don't bet on him winning, and so you remove him from the potential list of winners. from there you then decide that both miss conjoined twin A and her sister conjoined twin B are not particularly likely winners. then you decide that miss hairy one-arm isn't really doing it for you either. now there are 5 ladies left who could all be contenders for the title. you don't know which one will win, but you have eliminated in your mind some of the likely losers. your chances of winning the bet have therefore increased, all while still not knowing which will be the winner or why.

the leading indicator in this case is your own common sense. you might get it completely wrong and the fat drunk guy in a two piece with one nut hanging out might win due to some crazy voting. you might bet on miss gorgeous green eyes winning and lose the bet because the winner was miss bodylicious blue eyes. who knows how it will play-out until it plays out. but common sense helps eliminate unlikely scenarios and leads you away from probable losers towards potential winners.
Congratulations ScalaFX for coming out of the closet!
  • #115
  • Jul 12, 2011 2:20am Jul 12, 2011 2:20am
Quoting Turveyd
understand the simple maths then we can discuss just how pointless it is.

If you went for real time then yes fine, but nothing can see the future therefore nothing is leading, ie ahead of the markets.
I dont trade the future. I trade real time. I react I dont predict.

RSI IS a LEADING indicator.
  • #116
  • Jul 12, 2011 2:22am Jul 12, 2011 2:22am
Quoting Fudomyo
John Hayden's work is also very good btw.


http://www.getfreeebooks.com/wp-cont...ermination.pdf


People have this strange notion that anything that utilizes prior data is automatically lagging. If somebody slaps something on their chart straight out of the box without setting it up properly, or learning any of the exclusions or correlations that go along with using it properly, of course they'll fail.
Thanks for suggestion mate. Ill check it out
  • #117
  • Jul 12, 2011 2:38am Jul 12, 2011 2:38am
There is nothing new in trading, its what you do with it. The concepts of golden cross and death cross got developed by people smarter than I'll ever be. Having had a death cross then you might consider eur to be in a down trend. You might think sell rallies. You might think sell around good candles.

Of course these entries could have been achieved from other methods. That doesn't make them wrong or ma crosses (giving trend) wrong.

What works for you and what doesn't is what counts.
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  • #118
  • Jul 12, 2011 6:44am Jul 12, 2011 6:44am
Quoting Fudomyo
I see what you're saying now and completely agree with your point.

I was using the word leading in a different context, of something signalling a probability prior to directional change.

If anyone believes an RSI or any other indicator is causing price to change that would be pretty hysterical.
Unemployment or non-farm payroll or the phase of the business cycle, among a few other things, causes GDP to rise and fall. These are causes. The presence of causative elements also signal probabilistic alterations in direction, dont you think? This is what i mean: While what custos listed are some of the causes of changes in GDP...the fact that i know these are what causes changes in GDP, i can plot the trend of these change elements using a time-series analysis, superimposing historical correlation to estimate the probability of GDP change.
  • #119
  • Jul 12, 2011 9:32am Jul 12, 2011 9:32am
Quoting dddd
Unemployment or non-farm payroll or the phase of the business cycle, among a few other things, causes GDP to rise and fall. These are causes. The presence of causative elements also signal probabilistic alterations in direction, dont you think? This is what i mean: While what custos listed are some of the causes of changes in GDP...the fact that i know these are what causes changes in GDP, i can plot the trend of these change elements using a time-series analysis, superimposing historical correlation to estimate the probability of GDP change.
We were discussing the differences in the meaning of the word "leading".

No one was suggesting fundamentals are not causal or that technical indicators are.

  • #120
  • Jul 12, 2011 1:59pm Jul 12, 2011 1:59pm
Quoting Fudomyo
We were discussing the differences in the meaning of the word "leading".

No one was suggesting fundamentals are not causal or that technical indicators are.

to me a leading indicator, would take the lead ie go first then the market would follow, it's misleading and incorrect.
Nothing to it, but to do it!!! Stick to the plan FOOL!!!!
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