Leading Vs Lagging Indicators

Lagging indicators use past price data to provide entry and exit signals, while leading indicators provide traders with an indication of future price movements, while also using past price data. When faced with the dilemma of leading vs lagging indicators, which should traders choose? The answer to this question ultimately comes down to individual preference after understanding the advantages and limitations of each.

Lagging indictors

Lagging indicators are tools used by traders to analyse the market using an average of previous price action data. Lagging indicators, as the name implies, lag the market. This entails that traders can witness a move before the indicator confirms it — meaning that the trader could lose out on a number of pips at the start of the move. Many consider this as a necessary cost in order to confirm to see if the move gathers momentum. Others view this as a lost opportunity as traders forgo getting into a trade at the very start of a move.

Leading indicators

A leading indicator is a technical indicator that uses past price data to forecast future price movements in the market. Leading indicators allow traders to anticipate future price movements and therefore, traders are able to enter trades potentially at the start of the move. The downside to leading indicators is that traders are anticipating a move before it actually happens and the market could move in the opposite direction. As a result, it isn’t uncommon to witness false breakouts, or signs of a trend reversal that just land up being minor retracements.

SHOULD YOU USE LEADING OR LAGGING INDICATORS?

There are no perfect indicators. By their very nature, indicators will help traders discover likely outcomes as opposed to a sure thing. It is up to the trader to conduct thorough analysis, with the aim of stacking the odds in their favour.

To further illustrate this point, below is an example of leading vs lagging indicators in EUR/USD, where the leading indicator appears to provide a better signal. Keep in mind that this is purely for demonstration and that the lagging indicator is equally as important.

The market sold off aggressively before retracing to the significant 61.8% level. Using a simple moving average (21, 55, 200), it is clear to see that the faster blue line (21) has not crossed below the slower black (55) line and therefore, this lagging indicator has not yet provided a short signal.

However, upon further analysis traders would be able to see that the market failed to break and hold above the 200-day moving average. The 200 SMA is widely viewed as a great indicator of long-term trend and in this example, is acting as resistance. This supports the short bias for traders eyeing a bounce lower off the 61.8% level.

Traders looking for fast signals will tend to favor leading indicators but can also reduce the time period setting on lagging indicators to make them more responsive. This however, should always be implemented with a tight stop loss to in the event the market moves in the opposite direction.

Traders seeking a greater degree of confidence will tend to favor lagging indicators. These traders often trade over longer time frames looking to capitalize on continuing momentum after entering at a relatively delayed entry level, while implementing sound risk management.

Is Blockchain Secure?

The security of personal data, especially that which is stored online, is a human right. It has failed to evolve and actually been deteriorating in recent years. Blockchain technology has the potential to entirely change this.

All of our data is stored online. We concede some of our most private information to the platforms that we use on a daily basis and we are often unaware which of our personal data is collected. Many users still conceal some of their most valuable data behind the shockingly weak combination of a username and password, with over half of users openly admitting they use the same password for all of their logins.

Is Blockchain Secure?

Yes, blockchain is innately secure. It utilises powerful cryptography to give individuals ownership of an address and the cryptoassets associated with it, through a combination of public and private keys, made up of combinations of random numbers and letter. This solves the issue of stolen identity as addresses are not directly associated with users’ identity, whilst also being far harder to compromise. Private keys are even more secure as they are considerably longer. It is in this way that blockchain offers a greater level of security to the individual user as it removes the need for weak and easily compromised passwords and online identities.

Is a Private Blockchain More Secure than a Public One?

The practise of building a private blockchain to preserve security is a severely misguided one. It is true that a private blockchain allows for the screening of participants, whereas a public blockchain is essentially accessible to everyone. However, it is this exposure that allows a public blockchain to develop immunity to hacks. For example, Bitcoin is the original public blockchain, having withstood years of relentless hacking without ever being compromised, getting more resilient with every hack that it withstands. This epitomises that public blockchains, much like Lisk’s, are considerably superior than private blockchains.

Can a Blockchain get Hacked?

No, a blockchain itself does not get hacked. The security of blockchain technology should not be confused with news about hacks, such as those carried out on cryptocurrency exchanges. Similarly, to normal hacks, the underlying vulnerability allowing for hacks on exchanges stem from centralisation. Despite blockchain technology being decentralized, there are still centralized aspects of it, such as cryptocurrency exchanges. This means that hackers can attack a single point in the hope of gaining access. As such, these hacks have given rise to calls for decentralized exchanges and it is only a matter of time before these become the main platforms allowing people to trade cryptocurrencies.

Such hacks epitomise how important it is for every aspect of blockchain to be as decentralized as possible, as distributed information and assets are definitely more secure.

The security of blockchain has roots in the cryptography that it utilizes however it is the technology’s decentralized nature that provides the foundations for its security. In fact, it is this distribution and decentralization that has got most people excited about the potential of blockchain technology.

One-Cancels-the-Other Order – (OCO) Explained

A one-cancels-the-other order (OCO) is a pair of orders stipulating that if one order executes, then the other order is automatically cancelled. An OCO order combines a stop order with a limit order on an automated trading platform. When either the stop or limit price is reached and the order executed, the other order automatically gets cancelled. Experienced traders use OCO orders to mitigate risk and to enter the market.

Basics of a One-Cancels-the-Other Order – (OCO)

Traders can use OCO orders to trade retracements and breakouts. If a trader wanted to trade a break above resistance or below support, they could place an OCO order that uses a buy stop and sell stop to enter the market.

For example, if a stock is trading in a range between $20 and $22, a trader could place an OCO order with a buy stop just above $22 and a sell stop just below $20. Once the price breaks above resistance or below support, a trade is executed and the corresponding stop order is cancelled. Conversely, if a trader wanted to use a retracement strategy that buys at support and sells at resistance, they could place an OCO order with a buy limit order at $20 and a sell limit order at $22.

If OCO orders are used to enter the market, the trader needs to manually place a stop loss order once the trade gets executed. The Time In Force for OCO orders should be identical, meaning that the timeframe specified for execution of both stop and limit orders should be the same.

How to place OCO order:

Select OCOorder type.

Select Base and Quote coin.

E.g. Market: BTC/LTC

Select the number of coins needs to be sold.

E.g. 10 coins. (quantity could be in the fraction)

Fill the Stop Loss fields.

Fill the Take Profit fields.

What are Trendlines?

A trendline is a line drawn over pivot highs or under pivot lows to show the prevailing direction of price. Trendlines are a visual representation of support and resistance in any time frame. They show direction and speed of price, and also describe patterns during periods of price contraction.

The trendline is among the most important tools used by technical analysts. Instead of looking at past business performance or other fundamentals, technical analysts look for trends in price action. A trendline helps technical analysts determine the current direction in market prices. Technical analysts believe the trend is your friend, and identifying this trend is the first step in the process of making a good trade.

To create a trendline, an analyst must have at least two points on a price chart. Some analysts like to use different time frames such as one minute or five minutes. Others look at daily charts or weekly charts. Some analysts put aside time altogether, choosing to view trends based on tick intervals rather than intervals of time. What makes trendlines so universal in usage and appeal is they can be used to help identify trends regardless of the time period, time frame or interval used.

A similar strategy involves something called a moving average. This involves tracking the typical prices of a crypto asset over a set period of time — and whether it’s a week, 10 days, 30 days or more is up to you. Comparing moving averages over a shorter time frame with a longer one can uncover new trends and enable you to pick up on significant levels of recent growth and decline that a more long-term statistical breakdown wouldn’t reflect too clearly.

Use Trendlines to predict the price movements of your cryptocurrencies or XcelToken Plus on an Exchange site of your choice.

Options Contract Explained

An options contract is an agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike price, prior to the expiration date.

The two types of contracts are put and call options, both of which can be purchased to speculate on the direction of stocks or stock indices, or sold to generate income. For stock options, a single contract covers 100 shares of the underlying stock.

The Basics of an Options Contract

In general, call options can be purchased as a leveraged bet on the appreciation of a stock or index, while put options are purchased to profit from price declines. The buyer of a call option has the right but not the obligation to buy the number of shares covered in the contract at the strike price.

Put buyers have the right but not the obligation to sell shares at the strike price in the contract. Option sellers, on the other hand, are obligated to transact their side of the trade if a buyer decides to execute a call option to buy the underlying security or execute a put option to sell.

Options are generally used for hedging purposes but can be used for speculation. That is, options generally cost a fraction of what the underlying shares would. Using options is a form of leverage, allowing an investor to make a bet on a stock without having to purchase or sell the shares outright.

Call Option Contracts

The terms of an option contract specify the underlying security, the price at which that security can be transacted (strike price) and the expiration date of the contract. A standard contract covers 100 shares, but the share amount may be adjusted for stock splits, special dividends or mergers.

In a call option transaction, a position is opened when a contract or contracts are purchased from the seller, also referred to as a writer. In the transaction, the seller is paid a premium to assume the obligation of selling shares at the strike price. If the seller holds the shares to be sold, the position is referred to as a covered call.

Put Options

Buyers of put options are speculating on price declines of the underlying stock or index and own the right to sell shares at the strike price of the contract. If the share price drops below the strike price prior to expiration, the buyer can either assign shares to the seller for purchase at the strike price or sell the contract if shares are not held in the portfolio.

Cryptocurrency Mining Explained

Cryptocurrency mining is one of the most regularly used approaches of validating transactions that have been executed over a blockchain network. Not only does blockchain work to protect transaction data through encryption, as well as store this data in a decentralized manner (i.e., on hard drives and servers all over the world) so as to keep a single entity from gaining control of a network, but also the primary goal is to ensure that the same crypto token isn’t spent twice. In effect, “mining” is one means of making sure that cryptocurrency transactions are accurate and true, such that they can never be compromised in the future.

Cryptocurrency mining itself refers to a type of validation model known as “proof-of-work” (PoW). There are two common validation types, and we’ll look at the other, known as proof-of-stake, in a moment.

In the PoW model — which bitcoin, Ethereum, Bitcoin Cash, and Litecoin use, to name a few — individuals, groups, or businesses compete with one another with high-powered computers to be the first to solve complex mathematical equations that are essentially part of the encryption mechanism. These equations correspond to a group of transactions, which is known as a block. The first individual, group, or business that solves these transactions, and in the process validates the accuracy of these transactions within a block, receives a “block reward.” A block reward is paid out as digital tokens of the currency that’s being validated.

As an example, the current block reward for bitcoin is 12.5 tokens. That means whoever is the first to correctly solve equations for a block is paid 12.5 tokens. With bitcoin near $9,500 per coin, that works out to a nearly $119,000 haul.

There are two major concerns attached to the PoW model. First, it’s an extremely electricity-intensive practice. To mine virtual currencies, massive mining centres with graphics processing units and/or ASIC (application-specific integrated circuit) chips are set up to handle this validation and processing. The electricity costs, depending on where an operation is located, can be enormous. It could also, in theory, be a drain on local or national electric grids, depending on how large digital networks and mining farms become.

The other issue is that the PoW model has a security vulnerability, at least for smaller digital currencies. Any individual or group that can gain control of 51% of a network computing power could essentially hold that network and digital currency hostage. Networks the size of bitcoin, Ethereum, and Litecoin have next to nothing to worry about. However, newly issued coins with fewer participants could be susceptible.

Though cryptocurrency mining might often be lumped in as one big free-for-all, there are differences in the equipment being used to validate transactions. For bitcoin, miners need to use highly specialized and expensive ASIC chips because of the difficulty in validating bitcoin transactions. Meanwhile, most other virtual currencies allow miners to use some variation of graphics processing units from the likes of NVIDIA or Advanced Micro Devices to proof transactions. However, the difficulty in this mining can still vary from one cryptocurrency to the next.

Perpetual Future Contracts Explained

To understand the functions of a Perpetual Future Contract it is important to first fully understand the meaning of a future contract. A futures contract is an arrangement to buy or sell a commodity, currency, or another tool at a prearranged price at a definite time in the future.

Unlike an old-fashioned spot market, in a futures market, the trades are not ‘settled’ promptly. Instead, two counterparties will trade a contract, that defines the clearance at a future date. Also, a futures market doesn’t allow users to unswervingly purchase or sell the product or digital asset. Instead, they are trading a contract representation of those, and the actual trading of assets (or cash) will happen in the future – when the contract is exercised.

As a simple example, consider the case of a futures contract of a physical commodity, like wheat, or gold. In some traditional futures markets, these contracts are marked for delivery, meaning that there is a physical delivery of the commodity. As a consequence, gold or wheat has to be stored and transported, which creates additional costs (known as carrying costs). However, many futures markets now have a cash settlement, meaning that only the equivalent cash value is settled (there is no physical exchange of goods).

Additionally, the price for gold or wheat in a futures market may be different dependent on how far is the contract settlement date. The longer the time-gap, the higher the carrying costs, the larger the probable future price uncertainty, and the larger the potential price gap between the spot and futures market.

Perpetual Future Contract

A perpetual contract is a special type of futures contract, but unlike the traditional form of futures, it doesn’t have a termination date. So, one can hold a position for as long as they like. Other than that, the trading of continuous contracts is based on an underlying Index Price. The Index Price contains of the average price of an asset, according to major spot markets and their relative trading volume.

Thus, unlike conservative futures, perpetual contracts are often traded at a price that is equal or very similar to spot markets. Still, the principal difference between the traditional futures and perpetual contracts is the ‘settlement date’ of the former.

What Does the Stochastic RSI Help You with?

This article is a continuation of the introduction blog written on the Stochastic RSI. The StochRSI was developed by Tushar S. Chande and Stanley Kroll and comprehensive in their book “The New Technical Trader,” first published in 1994. While technical pointers already existed to show overbought and oversold levels, the two developed StochRSI to improve sensitivity and generate a greater number of signals than traditional pointers could do.

The StochRSI deems something to be oversold when the value drops below 0.20, meaning the RSI value is trading at the lower end of its predefined range, and that the short-term direction of the underlying security may be nearing a low a possible move higher. Conversely, a reading above 0.80 suggests the RSI may be reaching extreme highs and could be used to signal a pullback in the underlying security.

Along with identifying overbought/oversold conditions, the StochRSI can be used to identify short-term trends by looking at it in the context of an oscillator with a centerline at 0.50. When the StochRSI is above 0.50, the security may be seen as trending higher and vice versa when it’s below 0.50.

The StochRSI should also be used in conjunction with other technical indicators or chart patterns to maximize effectiveness, especially given the high number of signals that it generates.

In addition, non-momentum oscillators like the accumulation distribution line may be particularly helpful because they don’t overlap in terms of functionality and provide insights from a different perspective.

The Difference Between the Stochastic RSI and the Relative Strength Index (RSI)

They seem similar, but the StochRSI relies on a different formula from what generates RSI values. RSI is a derivative of price. Meanwhile, stochRSI is derivative of RSI itself, or a second derivative of price. One of the key differences is how quickly the indicators move. StochRSI moves very quickly from overbought to oversold, or vice versa, while the RSI is a much slower moving indicator. One isn’t better than the other, StochRSI just moves more (and more quickly) than the RSI.

Limitations of Using the Stochastic RSI

One downside to using the StochRSI is that it tends to be quite volatile, rapidly moving from high to low. Smoothing the StochRSI may help in this regard. Some traders will take a moving average of the StochRSI to reduce the volatility and make the indicator more useful. For example, a 10-day simple moving average of the StochRSI can produce an indicator that’s much smoother and more stable. Most charting platforms allow for applying one type of indicator to another without any personal calculations required.

Also, the StochRSI is the second derivative of price. In other words, its output is two steps away from the actual price of the asset being analyzed, which means at times it may be out of sync with an asset’s market price in real time.

What Is the Stochastic RSI?

The Stochastic RSI (StochRSI) is an indicator used in technical analysis that varies between zero and one (or zero and 100 on some charting platforms) and is shaped by applying the Stochastic oscillator formula to a set of relative strength index (RSI) values rather than to typical price data. Using RSI values within the Stochastic formula gives traders an idea of whether the current RSI value is overbought or oversold. To put it simply, Stochastics and RSI are based off of price, Stochastic RSI originates its values from the Relative Strength Index (RSI); it is essentially the Stochastic indicator applied to the RSI indicator.

The StochRSI oscillator was developed to take benefit of both motion indicators in order to create a more delicate indicator that is tuned to a specific security’s past performance rather than a comprehensive analysis of price change.

The Formulas For the Stochastic RSI (StochRSI) are:

StochRSI= RSI−min[RSI]

max[RSI]−min[RSI]

Where:

RSI = Current RSI reading;

Lowest RSI = Lowest RSI reading over last 14 periods (or chosen lookback period); and

Highest RSI = Highest RSI reading over last 14 period (or lookback period).

How to Calculate the Stochastic RSI

The StochRSI is based on RSI interpretations. The RSI has a contribution value, typically 14, which tells the pointer how many periods of data it is using in its calculation. These RSI levels are then used in the StochRSI formula.

Record RSI levels for 14 periods.
On the 14th period, note the current RSI reading, the highest RSI reading, and lowest RSI reading. It is now likely to fill in all the formulation variables for StochRSI.
On the 15th period, note the current RSI reading, highest RSI reading, and lowest reading, but only for the last 14 period (not the last 15). Compute the new StochRSI.
As each period ends compute the new StochRSI value, only using the last 14 RSI values.

In the next blog will talk about talk about what the StochRSI tells us, how to use it to your advantage and the limitations that it can come with, so stay tuned.

How to Use the MACD Indicator

MACD is an abbreviation for Moving Average Convergence Divergence. This tool is used to recognize moving averages that are representing a new movement, whether it’s bullish or bearish. Our utmost significance in trading is being able to find a trend, because that is where the most money is made.

With an MACD chart, you will usually see three numbers that are used for its settings.

The first is the number of periods that is used to calculate the faster-moving average.
The second is the number of periods that is used in the slower moving average.
And the third is the number of bars that is used to calculate the moving average of the difference between the faster and slower moving averages.

How to Trade Using MACD

Because there are two moving averages with dissimilar “speeds”, the faster one will noticeably be faster to react to price movement than the slower one. When a new trend ensues, the fast line will react first and eventually cross the slower line. When this “crossover” occurs, and the fast line starts to “diverge” or move away from the slower line, it often designates that a new movement has formed.

The fast line crossed under the slow line and properly identified a new downtrend. This is because the difference between the lines at the time of the cross is 0. As the downtrend begins and the fast line deviates away from the slow line, the histogram gets bigger, which is good indication of a strong trend. There is one drawback to MACD. Naturally, moving averages tend to lag behind price. After all, it’s just an average of historical prices.

Since the MACD signifies moving averages of other moving averages and is smoothed out by another moving average, you can imagine that there is quite a bit of lag. However, MACD is still one of the most favoured tools by many traders.