Forex Best Leading Indicators
Trendlines
Trendlines are the trader’s best friend and one of the best leading indicator a trader can use in his charts.
While trades are entered on a bounce of long term trendlines (at H4, D1, W1 and MN timeframes) with relatively loose stop-loss triggers, medium and short term trendlines can be very accurate and it is not unusual to find them working on a “by the pip” basis.
Breakouts are another example of trendline entries, specially when they are confirmed by a “support/resistance role reversal” when, after a breakout, the prices retrace to the trendline and then bounce back away.
Horizontal support and resistance lines are special cases of trendlines. When combined to Pivot Points and/or Fibonacci levels, they usually reveal very probable bounce or role reversal areas.
Types of Trendlines
- Support and Resistance Horizontal Lines
- Support and Resistance Trend Lines
- Median Lines
- Logarithmic Trend Lines
(Check out this article to see why Logarithmic Trendlines work) - Andrews Pitchfork (see bellow…)
YouPip.com publishes free chart analysis with high probability trendlines and pivot points updated many times a day. Check it out!
Pivot Points
Pivot Points are great at predicting turning points in the currency markets. Because so many traders have believed on them, they become a self-fulfilled prophecy predicting monthly, weekly and daily prices around pending orders are placed and automatic trading software make their bets.
While the classic pivot points are the best prices to watch on a daily basis, all the other pivots start to become important when looked from a weekly and monthly perspective.
Always pay attention to daily R2 and S2 classic pivot points. Specially near London Session closing time, they represent important turning points caused by cash outs of traders who follow the Londoners and head home, finishing their trading day.
Another powerful use of pivot points rely on the overlap and clustering of different types of monthly, weekly and daily pivots over a price area. Fibonacci, Psychological levels, Trendlines and other lagging indicators such as Stochastic turns will add more confirmation and precision to probable reversals at a pivot point area.
Types of Pivot Points
- Classic Pivot Points
- Fibonacci Pivot Points
- Camarilla Pivot Points
- Woodie’s Pivot Points
- DeMark Pivot Points
Fibonacci Retracements and Extensions
The famous Fibonacci sequence is considered the best measure for proportion and equilibrium on all forms present on Nature.
Fibonacci ratios also seem to be intrinsically bound to the human senses, be it when we stare at the perfect proportions of a beautiful woman, or when we are catch by the greed and fear of dealing with the price swings on the currency trading markets.
Whichever way they may work, the Fibonacci retracements and extensions will be seen and respected on most trend swings at the Forex currency pairs.
Their best use is on trending markets, where they work in fractal manner by showing turning points on price extensions and retracements, either during each individual swings or full trends and price moves.
Again, look for agreement between long and short term Fibonacci ratios and their overlap with other leading indicators for the best trading opportunities.
Forex Psychological Levels
The so called Psychological Levels are prices that can cause anxiety and expectation on the people following a financial instrument. News hype, dollar parity, rounded prices, daily high and lows and historical levels are normally respected by many traders and may cause a trend to stall or even reverse.
Click here learn more about Forex Psychological Levels
Andrews Pitchfork
Many traders consider Andrews Pitchfork the best trendline methodology although its use is widely misunderstood and underused in most Forex articles.
Andrews Pitchfork defines three lines of extremely high bounce rates that consist of a median line plus other two parallel lines that are drawn on each trend swing using its swing high, swing low and the previous swing point.
While trying to fit a pitchfork on a trend by forming a channel will work great at most of the time, this is not the main use of Alan Andrews work.
We will soon write an article about the best uses of Andrews Pitchfork. Keep checking at www.youpip.com from time to time.
At the meantime check these great books. They are a must read for any trader wanting to take full advantage of the pitchfork methodology:
- Download Free e-book: Using Median Lines - An Emipirical Study – by Greg Fisher
- The Best Trendline Methods of Alan Andrews and Five New Trendline Techniques – by Patrick Mikula
- Other Greg Fisher Median Line books
- Pitchfork Channel Fitting Strategy
Moving Averages??
Yes, Moving Averages. You read it right. Although MA’s are lagging indicators by definition, some of them can predict price bounce areas ahead of time, acting in a leading way.
The best moving averages for use as leading indicators have higher periods and don’t move much with the development of price action in the last unfinished bar. The 200 EMA and 50 SMA are among the best examples but the same kind of strategy can also be used on some MA’s of smaller periods such as the 21 EMA, the 14 IRLS MA and the 5 T3 EMA.
To learn more about the use of Moving Averages check out:
Market Correlations
Market Correlations offers one of the best ways to know in advance how a currency pair will behave in the near future. Very often one of the correlated markets take the lead on a S/R hold or breakout that are then followed by its peers. Also, Support and Resistance areas, Pivot Points and Fibonacci levels are often interrelated between the different correlated markets.
You can find weekly updated correlations for the most important currencies and futures contracts at the FX-Bootcamp’s blog.
Most Important Dollar Correlated Instruments
| Futures Market (Exchange) | Symbol |
| Gold (Comex) | GCM0 |
| Mini Crude Oil (Nimex) | QMN0 |
| 10 Year U.S. Notes (Ecbot) | ZNM0 |
| Mini SP-500 (Globex) | EXM0 |
| Mini Nasdaq 100 (Globex) | NQM0 |
| Mini DJIA (Ecbot) | YMM0 |
Other Important Correlations in Forex
| Futures Market (Exchange) | Symbol |
| DAX (Eurex) | FDAXM0 |
| FTSE 100 (Euronext) | FTSEM0 |
| NIKKEY 225 (Globex) | NKDM0 |
Currency Relative Strength Indexes
| Index (Exchange) | Symbol |
| Dollar Index (Ice) | GCM0 |
| British Pount (Globex) | 6BM0 |
| Euro (Globex) | 6EM0 |
| Japanese Yen (Globex) | 6JM0 |
