The leading indicator is helpful to identify early entries and exits (especially near support and resistance).
Green = trend up Red = trend down
How it works: The leading indicator calculates the difference between price and an exponential moving average. Adding the difference creates a negative lag relative to the original function. Negative lag is what makes this a leading indicator. The amount of lead is exactly equal to the amount of lag of the moving average. The leading indicator has lagging signals at turning points. The leading indicator will always have noise gain, which gets eliminated by applying a moving average.
Modifying the alpha values will modify the amount of noise and change the sensitivity of trend change. Example 1: Changing alpha1 from 0.25 to 0.15 lowers noise, more clearly identifies trend, and adds delay to this indicator. Example 2: Changing alpha1 from 0.25 to 0.35 increases noise, less clearly identifies trend, BUT more quickly indicates a trend change.
Calculations:
Where: alpha1 = 0.25 alpha2 = 0.33
Leading = 2 * (arithmetical mean of current High and Low price) + (alpha1 - 2) * (arithmetical mean of previous High and Low price) + (1 - alpha1) * (previous 'Leading' value) Total Leading = alpha2 * leading + (1 - alpha2) * (previous 'Total Leading' value) EMA = 0.5 * (arithmetical mean of previous High and Low price) + 0.5 * (previous 'EMA' value)
Uptrend when 'Total Leading' value is greator than the EMA Downtrend when 'Total Leading' value is lesser than the EMA
Cybernetic Analysis for Stocks and Futures, by John Ehlers (page 231-235)
Versionsinformation
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Added alerts for when trend changes up or down.
How to add alerts: 1. Add the indicator to the chart then, then go into its settings 2. Check off Alerts to enable 3. Create Alert 4. Set condition to "Leading" 5. Select create
very neat how on the ball does this work as well what would be the best time frame to trade this thanks alot
AwesomeAvani
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How do I setup an alert as the condition drop-down menu does not include colors and so on? Thanks!
TanHef
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@AwesomeAvani, You select 'Leading' as the condition. The actual color selection you are referring to is selected from within the indicator's settings in the Alert section.