If you use them to trade on ‘only one time frame’ yes but if you use them on a lower time frame to trade a ‘higher time frame’ it’s very debatable. You can also debate a pilot’s instruments lag as well ‘without’ taking into consideration the big picture. For example, an altimeter is useless when you don’t know your location in flight if you are flying over a mountain range as you plan to land at sea level so by the time you see the mountain the altimeter is lagging without the proper information and therefor useless but with the addition of an approach topography prior to landing the altimeter does not lag anymore as it now helps navigate safely.
Lets say you want to trade the 5 MA or even the recent Stoch cycle down using only the weekly chart as in this example. As you know you’d probably end up getting in 100’s of pips late. The big picture shows that after the rally price is likely to retrace at some point. Regardless of buying or selling long term signals we need timing instruments to get into a trade a little better.
Here on the 4 hr the 55 MA gives us the same view as the weekly 5 MA does. When the candles are far away from the 55 (and weekly 5) it would be highly unlikely that price would just reverse trend and run thru the 55 MA but we can trade plan our way into a reversal regardless. With the weekly Stoch OB and likely to cycle down at some point the MA’s and MACD on the lower time frame allow us to read into a move for better timing. First watch for candles to break thru the 55 (in white circle) as an early indication or a ‘leading’ factor that price might reverse. Once that happens we can turn to the Stoch and 5 MA here on the 4 hr to start ‘timing’ the larger degree weekly move by trade planning to sell. The 21-55 MACD will weaken and eventually fall below the ‘0’ line giving a confirmation for the higher time frame ‘And’ realize these candles update 6 times/day all week ‘Before’ the weekly chart updates on Friday after the market close. The same thing will happen in reverse of course for the bulls, example below.
15 Min (1):
Now do the ‘Exact’ same methodology on the 15 min to time the entries for the 4 hr 5 MA. So the 55 here is the 5 MA for the 4 hr so as the Stoch cycles are OB trade plan to sell those rallies. When the 15 min 21-55 weakens and crosses the ‘0’ line it’s a leading indication once again for price on the higher time frame. So if the 4 HR is being used to trade the weekly and the 15 min is used to trade the 4 HR you are aligning 3 time frames of momentum and using the MA’s and MACD ‘leading’ the way to trade the higher degree time frame. If either of these go against your trade plan on the 15 min then exit & trust the indicators and ‘wait’ for another entry, it will come just be patient!! To further ‘lead’ into a trade you can trade the 15 min 5 MA and Stoch cycles by simply repeating exactly the same methodology on the 1 min chart !! You can think of you entries on the 1 min chart as day trades and the entries on the 15 min chart as swing trades.
15 Min (2):
This chart I am using to show a reversal the frustration that comes when trading that reversal. The long entries are counter trend (blue circles) as bulls look to buy off the 38.2 long term fib zone. This is where patience and diligence comes into trading a plan and following your signals to stay in or get out and wait!!
Now add other ‘leading indicators’ into your plans as well such as S&R and Pivots for example. This is a lot to chew on and when trading long term signals ‘Do Not” ignore the ‘Time’ factor. It is probably the most important and least discussed hurdle in trading since we trade the ‘Right’ side of a chart, NOT the left side. Using alarms on your indicators helps with the time factor especially if you have them texted to you from MT4!
What do you think, are MA’s and MACD leading or lagging?
Note: Keep in mind that ‘ALL’ indicators do just ‘One’ thing, they measure ‘Rate of Change.’ How do you use your favorite indicators?
Hope you enjoy.