Predicting the price of an asset in the market can be quite challenging. Despite it being a challenge, that’s exactly what is going on in financial markets. The best experts in the market are good at predicting the price. On the other hand, new traders cannot make profits that they wish to because they do not know how to predict the price of the asset. Here, it is important that experts do not have any magical wand to know the prices of the assets. They are trying different methods to know a price shift before it takes place. Once a new trader knows about these, he/she can also make profitable trades.
So, when you do technical analysis of the market, you have to rely on indicators. As the name suggests, indicators tell you whether you should buy a particular asset or sell it. Of course, the indicator is not forcing you in any way that you should take a particular decision. If you want, you can keep away from trading at all. The job of an indicator is only to forecast a change in the market and tell you what the change will be. So, what could be the leading indicator in technical analysis? Let’s dig deeper into this concept Neuercapital
Understanding the Basics of Leading Indicator
Here, you have to know that there are two types of major indicators in the market. First, you have the leading indicator, and second, you have the lagging indicators. You can know a lot from their names. A leading indicator tells you that a price shift is about to happen in the market. It predicts the shift in a particular direction. On the other hand, you have a lagging indicator that only tells you the price movement when it has already taken place. Why would you want to look at an indicator when the price shift has already taken place?
Well, the idea is to use this indicator to predict further movements in the market. Not to mention, you can collect data from all of these indicators and predict the market movement in advance as well.
On the other hand, a leading indicator does not wait for the shift in the market. Instead, it tells you that a shift is about to happen in a particular direction. If your technical analyses are correct and the leading indicators have pointed in the right direction, you can benefit from a trade that you had predicted well before the market shift. In short, you will be taking the risk of trading on “future’ events.
There Are Different Types of Leading Indicators
Leading indicators can be of many different types. You just have to pick the ones that suit your trading style. You can pick from dozens of leading indicators. For example, if you look at the basic chart of any asset in the market, you will notice candlesticks. These candlesticks tell you whether you the starting prices, ending prices, the total volume within a timeframe, etc. You can predict the price of an asset based on the data you collect from these candlesticks.
In addition to that, you have to know other types of indicators as well. For example, volume has always been a great indicator in the market. New traders often make the mistake of entering a trade based only on the data they collect visually from the chart. They look at the price movement. They think the price has been going up and place their trade based on that trend. What they completely miss at that point is the volume of trading. Yes, the price has been on the rise but what about the volume of trading?
If the price is going up but the volume shows decline, you can expect the price of the asset to fall. This happens every day in financial markets, and that’s what deceives new traders. In a similar way, you might think that the falling price of a particular asset is indicating a further fall, but you are completely ignoring the volume of trading. Despite the fact that the price of the asset is going down, it can suddenly go up if the volume has been on the rise.
It is interesting to know here that leading indicators can tell you different stories in the market. For example, leading indicators can tell you about trends in the market. They don’t just tell you the price but a repeating trend. If you know the repeating trend, you can predict the movement of the price before it happens. In addition to that, you have leading indicators that tell you about the momentum shift. Momentum shift prediction is when a leading indicator tells you that the price is going in a certain direction but the momentum is slowing down.
So, you might see the prices going up but since the momentum is slowing down, you could see the prices start to come down pretty fast. In short, a leading indicator tells you when a certain trend is about to shift. You have volatility indicators as well. If you want to make some great money from trading in less time, this is the type of indicator you will be looking it. It tells you how much change the market is about to experience in the price. The change could be positive or negative depending on the reading of the analysis.
It can tell you that the price is about to see a lot of decline or a lot or rise. So, it is up to you which particular indicator you consider before you enter a trade. You can look at one, two, or all of them if you want. However, looking at all of them is not possible because you can end up spending too much time.
The most important thing that you have to remember as a bitcoin trader is that no indicator in any financial market gives you 100% results. Forecasts are still that – forecasts. They can never guarantee any outcomes no matter how detailed they are. You are making a prediction, which can go in your direction or result in a completely opposite outcome to your prediction. Be sure to use all the possible means to confirm the price move before you put your money on the line. Better yet, learn the many methods of minimizing your risks so even if the trend does not go in your favor, you can still benefit come out with a profit.