Lesson #41 Find Out What Momentum / Lagging Indicators Are

Therefore, how is a trend identified? MACD and moving averages are the known indicators to identify a trend. At the expense of delayed entry, these indicators will identify trends when they are determined. The good side is that there will be less possibility of being mistaken.

Looking at the 1-hour chart of EUR/USD, there was a bullish crossover for MACD at 3:00 am EST on 08/03/05 and the 10 period EMA crossed over the 20 period EMA at 5:00 am. These two signals were all accurate; you would have failed to take on the big move if you waited for both indicators to present you a bull signal. If you analyze from the start of the uptrend at 10:00 pm EST on 08/02/05 to the close of the candle at 5:00 am EST on 08/03/05, you would have observed a profit of 159 pips while sitting on the sidelines.

Look again at the same chart and it will be shown to you how these crossover signals can from time to time give false signals. These are often called “fake-outs”. After the uptrend that was discussed you can see the bearish MACD crossover.

A “sell” signal can be seen ten hour after where the 20 EMA crossed below the 10 EMA. It can also be seen that the price did not fall but remained pretty much sideways then later go on with its uptrend. By the time both indicators were in agreement, you probably entered a short trade at the bottom and set yourself up for a loss. It would have been a disappointment.