Leading Indicators as Opposed to Lagging Indicators

Salty Gibbon

Experienced member
1,535 6
Stochastics sometimes lead price - but not as used by most people ;-)))

I know that this is a very old post Richard but could you possibly elaborate and give some explanation as to under what conditions Stochastics can lead price.

Is it to do with the settings and increasing the sensitivity of the Stochastic indicator or something much less obvious ?
 

TheBramble

Legendary member
8,394 1,170
This thread should win an award for the longest shelf life. It's died twice and come back to life.

The "Lazarus Indicator"?

I think nbo2's post (#30) contains the germ of what a true leading indicator might be. Not that there could be such a thing as a leading indicator of course. An indicator just re-presents (inappropriate punctuation intentional) what you already know: Time, Price, Volume.

But as nbo2 says, it's what is being used to calculate an indicator and how it's being used that leads to an understanding in many cases of what is really happening right NOW - at the abyss we call 'the bit after the last bar'. From there, it's all guesswork, but the more you do it, and the more you understand the fundamental mechanics - the better you guess.

I still use indicators, but with a much greater awareness of what I think they are going to do next.
 

Roberto

Experienced member
1,073 19
TheBramble said:
I still use indicators, but with a much greater awareness of what I think they are going to do next.
Yes ... interesting you should put it that way, Tony. This was my one point of slight unease with the Chick Goslin book, actually. There seemed to me to be something inescapably circular about the way he argues for improving your guesswork of which way the price will go by looking back at the beginning part of an MA (or similar) and seeing what sized numbers will drop off as they get replaced with more current-sized numbers. I read this logic quite a few times without altogether allaying my suspicions of "circular argument", but eventually decided I must be misjudging the situation, because what he was proposing clearly works for him and for other people too ...
 

TheBramble

Legendary member
8,394 1,170
I've not read the book, but from what you say if it's just a simple MA what he says makes sense.

For example:-

If the 100 period MA is above the current price of 1000 and the first few datapoints used to calculate the MA (those nearest the beginning of the 100 period) are higher than currently (say 1025 or above), it's a reasonable 'guess' that unless things change dramatically, the trend/consolidation will continue as presently and the overall value of the MA at its next plot will be lower.

You're dumping a higher value and taking a lower one into the MA calc.

However, MAs, however you paint them/use them AIN'T leading.... :LOL:

Your eyes and your brain are really the only leading 'indicators' you've got (or need).
 

Roberto

Experienced member
1,073 19
TheBramble said:
I've not read the book
Ah, sorry; thought you had, for some reason.

TheBramble said:
If the 100 period MA is above the current price of 1000 and the first few datapoints used to calculate the MA (those nearest the beginning of the 100 period) are higher than currently (say 1025 or above), it's a reasonable 'guess' that unless things change dramatically, the trend/consolidation will continue as presently and the overall value of the MA at its next plot will be lower.
"The price will be lower because the indicator will go lower because the forthcoming lower-prices will replace earlier, higher prices in the indicator, thus lowering it."? :)

No, that's not what you said, I know ... but I think you can see how one might interpret a slightly "circular" component in the argument?

TheBramble said:
MAs, however you paint them/use them AIN'T leading.... :LOL:
That's for sure!
 

dbphoenix

Legendary member
6,953 1,260
Roberto said:
I read this logic quite a few times without altogether allaying my suspicions of "circular argument", but eventually decided I must be misjudging the situation, because what he was proposing clearly works for him and for other people too ...

There are many things that reportedly "work" for someone or someones or other, but which fail to measure up when tested. And there are many things that seem to "work", but when examined more closely are found to work for reasons other than those which are suggested. Spring comes, after all, whether one tosses the virgin into the volcano or not.

This business of dropping off old numbers is used in a number of applications, such as some calculations of the AD line. But, eventually, one arrives at a So What? Like taking your age and multiplying it and dividing it and adding and subtracting and including the loose change in your pocket and adding 115, it's easier just to remember how old you are and to count your change.
 

TheBramble

Legendary member
8,394 1,170
Roberto said:
"The price will be lower because the indicator will go lower because the forthcoming lower-prices will replace earlier, higher prices in the indicator, thus lowering it."? :)

No, that's not what you said, I know ... but I think you can see how one might interpret a slightly "circular" component in the argument?
It's circular the way you've phrased it Roberto.

But no, the process of averaging a set of numbers (which is all we're doing) is not circular at all.

If you're adding (or probably about to add) bigger numbers to a set which is being averaged than those that are being dropped, your average is going to go up.

If you're adding (or probably about to add) smaller numbers to a set which is being averaged than those that are being dropped, your average is going to go down.

No indicator ever has a direct impact on the price.
 

TheBramble

Legendary member
8,394 1,170
dbphoenix said:
There are many things that reportedly "work" for someone or someones or other, but which fail to measure up when tested. And there are many things that seem to "work", but when examined more closely are found to work for reasons other than those which are suggested. Spring comes, after all, whether one tosses the virgin into the volcano or not.

This business of dropping off old numbers is used in a number of applications, such as some calculations of the AD line. But, eventually, one arrives at a So What? Like taking your age and multiplying it and dividing it and adding and subtracting and including the loose change in your pocket and adding 115, it's easier just to remember how old you are and to count your change.
All well and good, whatever, but what has that to do with Moving Averages or Leading/Lagging Indicators?
 

Roberto

Experienced member
1,073 19
TheBramble said:
If you're adding (or probably about to add) bigger numbers to a set which is being averaged than those that are being dropped, your average is going to go up.
I follow that entirely, Brambly One, but in my mind there's possibly some circularity in Goslin's argument, because it seems to me that he's inferring that the price will go up because the average goes up, whereas in reality the average will only go up because (if) the price has gone up. However, it's late and I'm more tired than usual and I concede that I may not be doing him justice, and I may not be doing you justice, and I may not even be doing DB justice (but he's probably used to that).
 

Salty Gibbon

Experienced member
1,535 6
Mr Charts

Stochastics sometimes lead price - but not as used by most people ;-)))

Salty Gibbon

I know that this is a very old post Richard but could you possibly elaborate and give some explanation as to under what conditions Stochastics can lead price.

FC

perhaps he is referring to divergance?? possibly the best/only way to use conventional indicators..

Yes, I think you are probably correct FC. Been looking at this and I think it is almost certainly to do with divergence.
 

Splitlink

Legendary member
10,850 1,234
Salty Gibbon said:
I know that this is a very old post Richard but could you possibly elaborate and give some explanation as to under what conditions Stochastics can lead price.

I know that Stochastics can give the impression of giving a good signal but it is all in the mind.
Stochastics are built out of historical data and there is no way that they are going to lead anything. Anyone who tends to be led by them is heading for a fall. In my opinion, that goes for all indicators and patterns.

Split
 
 
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