Leading indicators are tools that help crypto traders predict future market shifts. Unlike lagging indicators, which follow price action and provide trend confirmation, leading indicators can help forecast price movements before they occur.
Let’s take a look at several leading indicators and what they may signal.
1. Relative Strength Index (RSI). The RSI is a momentum oscillator that measures the speed and change of price movements. It oscillates between 0 and 100 and is typically used to identify overbought or oversold conditions in the cryptocurrency market. Traders can use the RSI to anticipate potential trend reversals when it reaches extreme levels.
2. Stochastic Oscillator. The Stochastic Oscillator is a momentum indicator that compares the closing prices to their price range over a specified time period. It oscillates between 0 and 100 and is often used to identify overbought or oversold conditions in the cryptocurrency market. Traders typically use the 80 and 20 levels. A sell signal occurs when the oscillator rises above the 80 level and then falls back below it. Conversely, a buy signal is triggered when the oscillator drops below the 20 level and then rises back above it.
3. Williams %R. Williams %R (also known as Williams Percent Range) is a bounded oscillator ranging from 0 to -100, with -50 serving as the midpoint. When Williams %R surpasses -50, it indicates that prices are trading in the upper half of the high-low range for the designated lookback period, suggesting bullish sentiment. Conversely, when Williams %R falls below -50, it suggests that prices are trading in the lower half of the high-low range for the designated lookback period, indicating bearish sentiment.
4. Ichimoku Cloud. The Ichimoku Cloud is a leading indicator used by crypto traders to gauge momentum and future S/R levels. It consists of five main components: the Tenkan-sen (Conversion Line), the Kijun-sen (Base Line), Senkou Span A (Leading Span A), Senkou Span B (Leading Span B), and the Chikou Span (Lagging Span). By analyzing the relationships between these components and the cloud formed between Senkou Span A and Senkou Span B, traders can anticipate potential future price movements.
Learn more: Leading and Lagging Indicators Explained.