How many indicators should confirm a reversal?

Ok, so I’m still very new and wet behind the ears with all this FOREX mumbo jumbo. In fact I’m still only on grade 9 of the Baby Pips school.

I have however, loaded up MT4 with a demo account so I can visualize what I am learning in real life. I’ve setup a simple 1 hour chart that shows the SAR, RSI, and Stoch, following the reading of grade 6. I’ve been watching it and noticed a nice setup in which two of the three leading indicators were indicating that a reversal.

As you will see in the image, the Stoch and RSI are indicating that it is overbought and ready for a reversal, however, the SAR still indicates an uptrend even after the reversal has occurred.

Isn’t the SAR suppose to be a leading indicator? How many indicators does it normally take for you to believe that a reversal is actually going to occur. Would you have gone short in this situation had you seen it building up?

personally i wouldnt use the SAR. i trade the the 4h and 1h charts as well and all i use is stoch and price action. on my 1h charts i have a stoch set at 8,3,3 with overbough and oversold lines at 75 and 25 respectively. just so i dont trade against the longer term trend i have another stoch on my 1h charts at 192,72,72 (24x) this represents the daily stoch.

also stoch does not show a reversal in price. it shows momentum but, when momentum reverses it is likely that a trend reversal will occur as well though not guranteed and there is no way of telling with stoch alone how far the reversal will be. it is also possible that stoch will signal a reversal (in momentum) lets say in this case a bearish reversal, and the price could still slant upward or go flat despite the reversal in the stoch.

hope this helps lol any questions feel free to ask

I forgot to attach the image :smiley:


the rsi and stoch show momentum which can lead to a trend reversal. both rsi and stoch are not based off price but SAR is (im pretty sure)

by looking at that chart it looks like a bearish reversal will occur (tho theres no way to tell how far it will go, and if i could id be well beyond a millionaire) im guessing either the stoch will reverse and price will continue to go up and you can consider that small bearish area a retracement OR the SAR will soon show a bearish signal while stoch and rsi continue to go down

My answer is none. The term “reversal” is relative in trading however the chart is your best indicator, it will show reversals when theres any.

Your indicators are based on price change over a set period if time.

The period if time is adjustable by numbers. (ie. RSI “14”)

Combining indicators is always going to give mixed signals as they are not set to average out the same amount of time and price change.

The best thing to do is find the one that is most dependable for your time frame, and experiment with different settings. For example, some people the RSI set to “10”.

Right, for an indicator to ‘lead’, you would have to have access to future prices, in which case you wouldn’t need the indicator in the first place. :slight_smile:

LOL I had just typed up a rather eloquent post saying that there was no such thing as a leading indicator.

Well said.

As previously mentioned, sometimes in looking for confirmation to make a trade, you can wind up with information overload. They start canceling each other out, and leaving you in a state of confusion.

Personally I’ve found MACDs and Stochs rather useless.

Maybe the school of pipsology should not call them “Leading Indicators” if everyone says that there is no such thing.

Too funny. I have no comeback. You win this round. :mad:

Yes, I can see how that might be misleading… :smiley:

But seriously, just because they do not tell you anything about the future does not mean they are not useful.

If you seek a holy grail, or a magic wand, you will find none. But indicators can be useful tools to accomplish specific tasks.

I’m looking for no magic wand. I’m just looking for answers. I was never under the impression that a “leading indicator” would tell me the future of a trend.

I’m simply using terms that came from this site. I don’t know exactly why people think I’m trying to use indicators that see the “future”. I’d assumed everyone here had read the school of pipsology and would understand what I was referring to. That’s what I get for assuming I suppose.

It’s just that when I read this, it looked like you were looking at your indicator to tell you when the trend was going to end. I was simply pointing out that this is not the case.

Sorry if I upset you, I’m really just trying to help.

No, it didn’t bother me that you pointed this out, it was the fact that multiple people were saying it. I probably worded my questions wrong. I have a difficult time conveying my questions, because this is all so new to me. I don’t really have the lingo down good enough to make well formulated questions yet.

Charrell, you are right, there are “leading indicators”. They don’t see the future they only suggest what is likely to happen next based on pass history and patterns. For example, over the last 100 years one of the most famous “leading indicators” has been the Dow transport index, formally the Dow railroad index. Historically an increase in the Dow Jones transport index has been a “leading indicator" of an increase in the Dow Jones Industrial index. Theory being a volume increase in the movement of raw materials, parts and supplies is a signal for an up coming increase in manufacturing. Fed Ex and UPS shipping volumes are also closely watched as “leading indicators”. Again, they do not see the future, but suggest what is likely to happen!

I don’t know enough about the SAR but an overbought Stoch or RSI signal can very well be viewed a “leading indicator” for a market reversal. The signal is overbought the signal is not reversal, but history shows that an overbought signal can be an early suggestion for a reversal, just like a recorded increase in shipping suggest a likely future increase in manufacturing.

I hope this makes sense!

PS flip up your 1h GPB/USD and you’ll see in hindsight how following the overbought Stoch & RSI “leading indicator” - “signal/suggestion” would have made you 90 some pips! :D:D:D

I’m not trying to split hairs here, but sounds like one and the same thing to me

When raw materials are moving, sounds to me like the increase in manufacturing is already underway…

PS flip up your 1h GPB/USD and you’ll see [B]in hindsight[/B] how following the overbought Stoch & RSI “leading indicator” - “signal/suggestion” would have made you 90 some pips! :D:D:D

Yea things always look great in hindsight :slight_smile:

today i personally lost 30 pips on an initial trade following a soon to be trend reversal (indication of my stoch but my SL was too small and trade was taken too early) but i re entered again and picked up bout 120 pips so a net gain of 90 for the day just off the GU

all i used was a Bolling Band and a simple 8,3,3 stoch :stuck_out_tongue:

How about this example::slight_smile:
“access to future price action” = crystal ball
“leading indicator” = 70% of the time event X has happened the market’s reaction has been “Y”, the other 30% of the time the reaction has been “Z”.

But… which happens first, increase in Dow Transport Index or Dow Industrials Index? Transports! Raw materials, parts and supplies need to be transported to the manufactures before the manufactures can produce the finished product.

This isn’t my opinion or idea, about 100 years ago Charles Dow developed the Dow Theory along with the Dow Railroad/transport Index and Dow Industrial Index. The Dow Rail/transport Index is the “leading indicator” for the Dow Industrial Index.
I like the Dow example, I think it’s good illustration of a “leading indicator”.

hope this helps:)

Yeah, isn’t SAR to be used as a stop loss trigger not an indicator of overbought/oversold? :confused:

I do appreciate the example given of the Dow Transport Index as a leading indicator. It actually makes a big more sense now as to how leading indicators can and should be used.