We have published 4 articles relating to the DiNapoli trading methods. Part 1 of the first article, Introduction to DiNapoli Trading – Leading and Lagging Indicators is listed below.
Free DiNapoli Trading Articles:
- Introduction to DiNapoli Trading Part One - Leading and Lagging Indicators
- Introduction to DiNapoli Trading Techniques Part Two - Tools
- A Matter of Style - why I trade using DiNapoli Trading Techniques
- Why Fibonacci?
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Introduction to DiNapoli Trading
Part One - Leading and Lagging Indicators
By Jason Bone © 2009
The DiNapoli approach to trading, also known as DiNapoli Levels or D-Levels, offers the discretionary trader a framework to deploy high-quality leading indicator analysis in the financial markets.
Parts 1 and 2 of this article assume some prior knowledge of technical analysis in financial markets; however a brief definition of leading and lagging indicators as referred to in this article, and also generally in other DiNapoli training material, will serve common understanding.
Most traders are familiar with and will use lagging indicators in some form. A lagging indicator is derived from previous market action and provides a confirming signal (buy or sell) after a move in price has begun - hence the lagging description.
Nearly all technical indicators found in the numerous charting packages available are lagging indicators and examples include –
- Moving averages
- RSI, and
- The MACD
What is common to them all is that price moves first and the confirming indicator signal lags behind.
Leading indicators – The opposite to lagging
Leading indicators identify potential areas of support and resistance before the market reaches these levels.
They are also derived from previous market action but the information provided by the indicator is available to the trader for decision making in advance. The price levels that are potential support or resistance are forecast before the market trades at those prices hence the leading description.
Leading indicators offer a number of benefits such as –
- They can be used for defining trade entries
- Stop placement, and
- The selection of profit objectives
It must be stressed that the proper use of any leading indicator requires that a thorough context first be derived from an application of lagging indicators in some form. This context gives the trader a defined trend or expected direction for the market.
Stated another way, the trader now knows if he should be considering long or short trades or even if he should be on the sidelines of a given market. The leading indicator analysis is applied within this overall context to enter in the expected direction of the next market move.
To properly apply leading indicator analysis, we must –
- Define when we are in an up or down trending market or when we expect the market to change direction
- Then apply the leading indicator to pre-calculate where support or resistance areas
- And then buy a market that pulls back to support in an uptrend or sell a market that rallies up to resistance in a downtrend
Blend leading and lagging indicators into a trading strategy
DiNapoli Trading properly mixes leading and lagging indicators in precisely the form described above and when implemented correctly, the result is a powerful discretionary trading methodology that provides:
- Pre-defined entry points
- Reasonably tight, market-derived stops and stop management
- Pre-calculated objectives for taking profits – known as soon as you enter a move
- A high percentage of winning trades
- Significant freedom in market approach and personal schedule
Which specific leading and lagging indicators are used for DiNapoli Trading is covered in Part Two of this article series.
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