It is important to use combined assessment based on fundamental and technical analysis when building a trading strategy. Leading analyses comprise about a third of all instruments of technical analysis. They help traders to make timely decisions and considerably cut the risks. These instruments are not perfect, and additional filters need to be used to avoid false signals. Traders Union analysts studied market leading indicators and compiled the list of the best ones. 

How to use leading indicators the right way

As a rule, oscillators are used during preliminary analysis of the financial market to confirm a trend or discover a trend change warning.

This is the algorithm to follow:

• analyze the market and determine the optimal entry points (taking into account the price movement range, volatility, etc.). If the trend is clearly visible, you can use leading indicators to learn at what stage it is;
• determine entry points. By using leading indicators you receive a preliminary signal. Price reversal is inevitable, if the indicator is in the overbought or oversold zone. The warning signal is the oscillator exiting the key zones. The main signal points to the breakout of the edge of a steady movement or the reversal;
• find entry points. For this, you need to set a Take-Profit order in the immediate vicinity to support and resistance levels;
• determine financial goals based on leading indicators. For example, if the oscillator moves to the opposite key zone, the position needs to be closed. 

Experts recommend using several leading indicators for more effective trading. 

Best indicators of technical analysis

Many oscillators are leading indicators. They allow traders to predict the future price performance. Such oscillators supplement trend indicators; they are used to confirm the main signal. 

The list of the most used leading indicators includes:

• RSI is the Relative Strength Index that allows traders to measure the magnitude and speed of the price change. This oscillator shows the price momentum on a scale of 0 to 100. If the RSI is higher than 70, it points to the overbought zone, lower than 30 – oversold zone;
• MACD (Moving Average Convergence/Divergence) is a leading indicator of momentum that points to the connection of moving averages. It is drawn as a histogram and a signal line. It allows traders to determine divergence of the current price from average indicators and determine the overbought/oversold zones’
• ADX is the average directional index. This indicator combines properties of an oscillator and a trend measurement tool. ADX consists of the main and two accompanying lines (-Di, +Di). Some believe that this indicator provides false signals. Nevertheless, it can be used as a main indicator, if interpreted correctly;
• ATR (Average True Range) is a trend oscillator that is also considered a leading indicator. It helps determine volatility of any market. It is particularly suitable for preliminary analysis of time frames from H1;
• CCI (Commodity Channel Index) is a leading indicator used to determine the oversold and overbought zones, areas of trend fading with subsequent reversal. It can be used with any asset. To reduce the impact of price noise, it is recommended to set a time frame from M30.

You can find the full list of indicators, and the advantages and disadvantages of using such instruments on the Traders Union website.

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