# What is meant by leading indicators explain with formula.

## Bollinger Bands.

Bollinger Bands are a type of price envelope developed by John BollingerOpens in a new window. (Price envelopes define upper and lower price range levels.) Bollinger Bands are envelopes plotted at a standard deviation level above and below a simple moving average of the price. Because the distance of the bands is based on standard deviation, they adjust to volatility swings in the underlying price.

KEY TAKEAWAYS

• Bollinger Bands® are a technical analysis tool developed by John Bollinger for generating oversold or overbought signals.
• There are three lines that compose Bollinger Bands: A simple moving average (middle band) and an upper and lower band.
• The upper and lower bands are typically 2 standard deviations +/- from a 20-day simple moving average (which is the center line), but they can be modified.
• When the price continually touches the upper Bollinger Band, it can indicate an overbought signal while continually touching the lower band indicates an oversold signal.

How this indicator works
When the bands tighten during a period of low volatility, it raises the likelihood of a sharp price move in either direction. This may begin a trending move. Watch out for a false move in opposite direction which reverses before the proper trend begins.
When the bands separate by an unusual large amount, volatility increases and any existing trend may be ending.
Prices have a tendency to bounce within the bands’ envelope, touching one band then moving to the other band. You can use these swings to help identify potential profit targets. For example, if a price bounces off the lower band and then crosses above the moving average, the upper band then becomes the profit target.
Price can exceed or hug a band envelope for prolonged periods during strong trends. On divergence with a momentum oscillator, you may want to do additional research to determine if taking additional profits is appropriate for you.
A strong trend continuation can be expected when the price moves out of the bands. However, if prices move immediately back inside the band, then the suggested strength is negated.

Here is this Bollinger Band formula:

## Moving averages (simple and exponential)

Exponential Moving Average (EMA) is similar to Simple Moving Average (SMA), measuring trend direction over a period of time. However, whereas SMA simply calculates an average of price data, EMA applies more weight to data that is more current. Because of its unique calculation, EMA will follow prices more closely than a corresponding SMA.

KEY TAKEAWAYS

• The EMA is a moving average that places a greater weight and significance on the most recent data points.
• Like all moving averages, this technical indicator is used to produce buy and sell signals based on crossovers and divergences from the historical average.
• Traders often use several different EMA lengths, such as 10-day, 50-day, and 200-day moving averages.

How this indicator works

Use the same rules that apply to SMA when interpreting EMA. Keep in mind that EMA is generally more sensitive to price movement. This can be a double-edged sword. On one side, it can help you identify trends earlier than an SMA would. On the flip side, the EMA will probably experience more short-term changes than a corresponding SMA.
Use the EMA to determine trend direction, and trade in that direction. When the EMA rises, you may want to consider buying when prices dip near or just below the EMA. When the EMA falls, you may consider selling when prices rally towards or just above the EMA.
Moving averages can also indicate support and resistance areas. A rising EMA tends to support the price action, while a falling EMA tends to provide resistance to price action. This reinforces the strategy of buying when the price is near the rising EMA and selling when the price is near the falling EMA.
All moving averages, including the EMA, are not designed to identify a trade at the exact bottom and top. Moving averages may help you trade in the general direction of a trend, but with a delay at the entry and exit points. The EMA has a shorter delay than the SMA with the same period.

Formula for Exponential Moving Average (EMA)

## Keltner channels.

Keltner Channels are volatility-based envelopes set above and below an exponential moving average. This indicator is similar to Bollinger Bands, which use the standard deviation to set the bands. Instead of using the standard deviation, Keltner Channels use the Average True Range (ATR) to set channel distance. The channels are typically set two Average True Range values above and below the 20-day EMA. The exponential moving average dictates direction and the Average True Range sets channel width. Keltner Channels are a trend following indicator used to identify reversals with channel breakouts and channel direction. Channels can also be used to identify overbought and oversold levels when the trend is flat.

KEY TAKEAWAYS

• Keltner Channels are volatility-based bands that are placed on either side of an asset’s price and can aid in determining the direction of a trend.
• The exponential moving average (EMA) of a Keltner Channel is typically 20 periods, although this can be adjusted if desired.
• The upper and lower bands are typically set two times the average true range (ATR) above and below the EMA, although the multiplier can also be adjusted based on personal preference.
• Price reaching the upper Keltner Channel band is bullish, while reaching the lower band is bearish.
• The angle of the Keltner Channel also aids in identifying the trend direction. The price may also oscillate between the upper and lower Keltner Channel bands, which can be interpreted as resistance and support levels.

How to Trade Forex Using Keltner Channels

Keltner Channels show the area where a currency pair normally hangs out.

The channel top typically holds as dynamic resistance while the channel bottom serves as a dynamic support.

How to Use Keltner Channels as Dynamic Support and Resistance Levels
The most commonly used settings are 2 x ATR (10) for the upper and lower lines and EMA (20), which is the middle line.

This middle line is pretty significant since it tends to act as a pullback level during ongoing trends.

In an UPTREND, the price action tends to be confined in the UPPER HALF of the channel, which is between the middle line as support and the top line as resistance.

Keltner Channel Calculation

## Moving average convergence divergence (MACD)

The Moving Average Convergence/Divergence indicator is a momentum oscillator primarily used to trade trends. Although it is an oscillator, it is not typically used to identify over bought or oversold conditions. It appears on the chart as two lines which oscillate without boundaries. The crossover of the two lines give trading signals similar to a two moving average system.

• KEY TAKEAWAYS
• The moving average convergence/divergence (MACD, or MAC-D) line is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA. The signal line is a nine-period EMA of the MACD line.
• MACD is best used with daily periods, where the traditional settings of 26/12/9 days is the norm.
• MACD triggers technical signals when the MACD line crosses above the signal line (to buy) or falls below it (to sell).
• MACD can help gauge whether a security is overbought or oversold, alerting traders to the strength of a directional move, and warning of a potential price reversal.
• MACD can also alert investors to bullish/bearish divergences (e.g., when a new high in price is not confirmed by a new high in MACD, and vice versa), suggesting a potential failure and reversal.
• After a signal line crossover, it is recommended to wait for three or four days to confirm that it is not a false move.

How this indicator works

MACD crossing above zero is considered bullish, while crossing below zero is bearish. Secondly, when MACD turns up from below zero it is considered bullish. When it turns down from above zero it is considered bearish.

When the MACD line crosses from below to above the signal line, the indicator is considered bullish. The further below the zero line the stronger the signal.
When the MACD line crosses from above to below the signal line, the indicator is considered bearish. The further above the zero line the stronger the signal.

During trading ranges the MACD will whipsaw, with the fast line crossing back and forth across the signal line. Users of the MACD generally avoid trading in this situation or close positions to reduce volatility within the portfolio.
Divergence between the MACD and the price action is a stronger signal when it confirms the crossover signals.

MACD Formula