There is no such thing "Laging indicators"

December 21st, 2009, 09:01 AM

Let me try and restate what I would call my take on this.

1. Indicators do nothing more than show in a different manner what price has done. After all they are based on some length of prior prices. That in and of itself has no predictive value.

2. One can observe if price/some indicator has done something X in the past and 7 out of 10 times price did something Y then one can say there is a 70% probability that if price/some indicator is currently doing X, that in the future price may do Y. To that extent one could say the price/some indicator action has a predictive value.

Pete

December 21st, 2009, 09:06 AM

baruchs

Hi to all,
It was my time to go to sleep and I woke up with lots of replies, but with no original thought.
I don't say that the indicators on them self are predictive. Only that they have an anchor point. Like price patterns and everything else in TA. You make a statement, to your self, and you try to validate it. If you did, great you have a starting point to a setup.
The most common example is MA cross, but the same is for FIB levels. People think that because the Fib retracements or extension tools show you levels in to the future they are predictive but because MA cross does not, its not a predictive tool. The truth is that they are exactly the same and so are price patterns. Your point of view should be of predictive nature. Your only question should be: If this indicator did this move what the PRICE will do next.

The last thing I want to say on this thread is that I question everything. So if some one gives a statement about trading, I think about it a lot and only then come to a conclusion if this statement is correct or not. (The emphasis is on a lot). So please if you want to contradict my statement your most welcome, but please take a moment (few hours) to think it through.

Baruch

Anticipating the market is how a trader makes a profit!!!!

Why didn't you say so in the first place!!!!

I agree with you 100 percent!!!!

RJay

January 4th, 2010, 12:26 AM

It all depends on what you mean by "leading" vs. "lagging". Technically, all indicators are constructed from past price data, so they could all be considered "lagging" in that respect. On the other hand, everyone tries to use indicators as a basis for predicting future price behavior, so I suppose you could call them all "leading" in that respect (although I wouldn't choose that particular definition myself.)

The most common definition I would say is as follows:

A lagging indicator is one that will turn only after price action has turned in a particular direction. For example, a moving average. You will never, ever see a moving average turn before the price itself does. That's what makes it "lagging".

A leading indicator is one that attempts to predict the future by using past data, and will sometimes turn before the price does. Case in point, most oscillators such as stochastics. You will often see a stochastic turn before the price actually changes the direction. The price to pay with leading indicators like oscillators is that they will often give you false signals as they turn too quickly. If you try to take every stochastic turn as an indicator of the market changing direction, you will quickly get killed (especially in a trend).

There is nothing magical about the words "lagging" or "leading" in my opinion, it just describes different ways that indicators parse data.

January 4th, 2010, 03:28 AM

FBJS,
Every decision we make in trading is made on past data. Thats the essence of TA.
The point I wanted to make in this thread is that you have your indicators or price patterns or whatever. They all consist of past data. Now you make assumptions into the future on their past behavior. If your assumption is good that means that in a long run you will be profitable.
What is good in trading, compared to other professions, is that you can check your assumption on past data. It does not guarantee for the future, but again this is TA. This is the best you have. It still is better then if you are in a fast food business and you want to open a new restaurant in a new location. You can gather different data to predict if this restaurant will succeed, but you can't make a simulation like in trading.
Look at this statement:

Quoting

So the term "get the lag out" really doesn't mean a whole lot does it.

This statement was made on this thread by a mentor, a teacher!
Its pure bullshit and thats what I wanted to prove here.

As for your statement:

Quoting

A leading indicator is one that attempts to predict the future by using past data, and will sometimes turn before the price does. Case in point, most oscillators such as stochastics.

Well I don't see how it can be even close to truth.
Here is a code of stochastic: (the whole code)

Code


nom.Set(Close[0] - MIN(Low, PeriodK)[0]);
den.Set(MAX(High, PeriodK)[0] - MIN(Low, PeriodK)[0]); // PeriodK = Kperiod

K.Set(100 * SUM(nom, Smooth)[0] / (SUM(den, Smooth)[0] == 0 ? 1.0 : SUM(den, Smooth)[0])); // Smooth = SlowKperiod
D.Set(SMA(K, PeriodD)[0]); // PeriodD = SlowDperiod

Please explain to me how it can turn in front of price?
The difference between indicators and oscillators is that oscillators are better suited for sideways action, but this is not the point in this thread.

Baruch

January 4th, 2010, 05:26 AM

baruchs

FBJS,

Please explain to me how it can turn in front of price?
The difference between indicators and oscillators is that oscillators are better suited for sideways action, but this is not the point in this thread.

Baruch

It can turn before price, as long as you accept the definition that "price" means the "trend of price". In the attached picture, you can see that a stochastic crossover occurs before price has officially broken out of a minor downtrend, and that price then follows it shortly thereafter. In a trend, you can see an oscillator actually turn against the trend and point opposite to the direction of price action for some time. When that happens, one of two things will occur - either the price action will follow the oscillator and start to reverse, or the oscillator will eventually "admit that it was wrong", and turn back towards the price trend. If the price action follows the oscillator, we can say that the oscillator turned "before price". If the oscillator turns back to the trend, then it was "wrong". Actually oscillators are pretty useless in trends, unless you use them to confirm turns back towards the trend direction. They are terrible at indicating the end of a trend, because you will get a lot of false reversal signals before the final turn which ends up being "correct".

Perhaps a better way of saying it is that oscillators turn very slightly before, or alongside price action.

January 4th, 2010, 06:18 AM

FBJS,
I'm sorry to say that I don't accept your definition for oscillators, but its not a discussion in this thread.
My point is that you should look at indicators, oscillators and price action only in one way:
And it is that you see some movement in them and after that you see a movement in price, so you speculate that this behavior will repeat it self. Then you check in back testing if this assumption has any ground.
Thats the only view point to indicators and such.
I don't need an SMA to tell me that price is going up or down, I can see this by looking at the price. I need SMA or what ever to show me points that I can exploit.
Thats why its stupid to talk about LAG!

Baruch

January 4th, 2010, 07:19 AM

baruchs

Thats why its stupid to talk about LAG!

Baruch

So far you are the one who spends the most time talking about LAG.

Seriously - I find it unreasonable to have such a confidence in the statement defying reality

January 4th, 2010, 07:45 AM

baruchs

FBJS,
I'm sorry to say that I don't accept your definition for oscillators, but its not a discussion in this thread.
My point is that you should look at indicators, oscillators and price action only in one way:
And it is that you see some movement in them and after that you see a movement in price, so you speculate that this behavior will repeat it self. Then you check in back testing if this assumption has any ground.
Thats the only view point to indicators and such.
I don't need an SMA to tell me that price is going up or down, I can see this by looking at the price. I need SMA or what ever to show me points that I can exploit.
Thats why its stupid to talk about LAG!

Baruch

I think that we seem to be arguing mostly about semantics and definitions here... since we seem to have different definitions for certain words, we're not going to agree on certain things. If you read my original post, you can see that I offered multiple definitions for what "leading" and "lagging" could mean in a few different contexts, depending on how you looked at it. (I then offered my personal definition, which you obviously don't agree with.) In any case, arguing about simple wording differences is probably not all that useful as an activity, so let's just agree to disagree on our definitions. In the end, price movement is what it's all about, regardless of the filter that you want to use to look at it.

January 4th, 2010, 10:03 AM

The only thing that I hate is stupid people, but I love stupid traders.
I hope this doesn't make me a bad person.

January 7th, 2010, 07:23 AM

may I...my 2 cents ...

there is some popular opinions that some indicators are lagging and some not, well at some level or in certain conditions that's right, but...
for example Stochastics, usually they could be considered as lagging indicator, right ?

now focus-pocus

Sto is lagging in trending market, but it's 100% ahead of anything in range market, if you know exactly ranges you are trading and stochastic periods are set correctly.
I.e. if you can make more or less reliable curve fitting of certain cycles trading with that will be plain vanilla.
However best indicator is very complicated and sophisticated indicator, really Holy Grail used just by pro and not disclosed to anybody, the name of that indicator is price

Anyone who interested and ready to discuss/share any "old set ups", i.e. different kind of lines, ranges, levels, ticks below low/above high, etc., etc. are more then welcome.

P.s. I enjoy a lot discussions here with real pro as what differs real pro from "false" pro is very simple thing : real pro knows exactly what he is talking about, having it clearly structured and simple.

Krgds,
Andrew

There is no such thing "Laging indicators"

Discussion in Platforms and Indicators

There is no such thing "Laging indicators"