PRICE, THE LEADING INDICATOR

Almost all traders will use indicators when analysing their charts. Indicators help traders to identify higher probability opportunities and determine when to enter as well as when to exit trades.

HOWEVER, when analysing a chart, specific attention and focus should always be given to the actual PRICE itself.

The PRICE is the most important thing to focus on. You want to understand what the price is potentially telling you in terms of possible market movement and direction. This movement and direction of PRICE is probably the closest you will get to a leading indicator as most other indicators are simply just manipulations of this price data anyways.

So, you want to focus on the PRICE FIRST and then only use your OTHER INDICATORS as a SUPPLEMENT to price to back up your view of the market.

In general, indicators can loosely be divided into 4 groups and an effective technical setup should consist of indicators to measure each of these 4 areas:

1. TREND - Are we going up, down or sideways?
Indicator Example -  Moving Averages.

2. MOMENTUM - Measures the acceleration and deceleration of prices in a direction.
Indicator Example - Stochastic or Relative Strength Index (RSI)

3. VOLATILITY – Measures the dispersion of prices.
Indicator Example - Average True Range (ATR) or  Bollinger bands.

And then....

 4. VOLUME for confirmation as it shows us market participation.
Indicator Example – Volume or On-Balance Volume

You want to keep it SIMPLE so that your ability to make trading decisions is EASY, QUICK and CLEAR.

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