Which technical analysis indicators are considered leading stock market indicators?
Relative Strength Indicators are also trailing indicators.  They are based on the number of recent upticks or downticks in an investment's price.  (The size of a tick is quantized, and related to the investment's price.)  By the time enough upticks have accumulated to generate a buy signal, the investment has already increased in price significantly.  Similarly, by the time enough downticks have accumulated a to generate a sell signal, the investment has already dropped in price significantly. The theory of Relative Strength Indicators is based on the hope that moves found by these indicators are likely to continue after the signal is generated.  But even if this is the case, someone who relies on these indicators will miss out on the first part of the move. Dorsey-Wright offers investment research based on the theory of Relative Strength Indicators.  They offer investment vehicles based on this research.  They also work with local investment advisors to develop custom back-tested strategies.  They have published a white-paper, with references to others' research.
You are correct that over a short term there is no guarantee that one index will out perform another index. Every index goes through periods of feat and famine. That uis why the advice is to diversify your investments. Every index does have some small amount of management. For the parent index (the S&P 500 in this case) there is a process to divide all 500 stocks into growth and value, pure growth and pure value. This rebalancing of the 500 stocks occurs once a year. Rebalancing The S&P Style indices are rebalanced once a year in December. The   December rebalancing helps set the broad universe and benchmark for   active managers on an annual cycle consistent with active manager   performance evaluation cycles. The rebalancing date is the third   Friday of December, which coincides with the December quarterly share   changes for the S&P Composite 1500.  Style Scores,   market-capitalization weights, growth and value midpoint averages, and   the Pure Weight Factors (PWFs), where applicable across the various   Style indices, are reset only once a year at the December rebalancing. Other changes to the U.S. Style indices are made on an as-needed   basis, following the guidelines of the parent index. Changes in   response to corporate actions and market developments can be made at   any time. Constituent changes are typically announced for the parent   index two-to-five days before they are scheduled to be implemented. Please refer to the S&P U.S. Indices Methodology document for   information on standard index maintenance for the S&P 500, the S&P   MidCap 400,the S&P SmallCap 600 and all related indices. As to which is better: 500, growth,value or growth and value? That depends on what you the investor is trying to do. The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts.  Generally higher highs and higher lows is considered an uptrend.  And lower lows and lower highs is considered a downtrend.  A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. A simple strategy for this is shown in the chart below:  I would be buying this stock when the price hits or gets very close to the trendline and then it bounces back above it. I would then have sold this stock once it has broken through below the trendline. This may also be an appropriate time if you were looking to short this stock. Other indicators could also be used in combination for additional confirmation of what is happening to the price. Another type of trader is called a bottom fisher. A bottom fisher would wait until a break above the downtrend line (second chart) and buy after confirmation of a higher high and possibly a higher low (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles, whether you prefer short term trading or longer term investing, and your appetite for risk. You can develop strategies using various indicators and then paper trade or backtest these strategies. You can also manually backtest a strategy in most charting packages. You can go back in time on the chart so that the right side of the chart shows a date in the past (say one year ago or 10 years ago), then you can click forward one day at a time (or one week at a time if using weekly charts). With your indicators on the chart you can do virtual trades to buy or sell whenever a signal is given as you move forward in time. This way you may be able to check years of data in a day to see if your strategy works. Whatever you do, you need to document your strategies in writing in a written trading or investment plan together with a risk management strategy. You should always follow the rules in your written plan to avoid you making decisions based on emotions. By backtesting or paper trading your strategies it will give you confidence that they will work over the long term.  There is a lot of work involved at the start, but once you have developed a documented strategy that has been thoroughly backtested, it will take you minimal time to successfully manage your investments. In my shorter term trading (positions held from a couple of days to a few weeks) I spend about half an hour per night to manage my trades and am up about 50% over the last 7 months. For my longer term investing (positions held from months to years) I spend about an hour per week and have been averaging over 25% over the last 4 years. Technical Analysis does work for those who have a documented plan, have approached it in a systematic way and use risk management to protect their existing and future capital. Most people who say that is doesn't work either have not used it themselves or have used it ad-hock without putting in the initial time and work to develop a documented and systematic approach to their trading or investing. No, and using a 37 year old formula in finance that is as simple as: should make it obvious technical analysis is more of a game for retail traders than investment advice. When it comes to currencies, there are a myriad of macroeconomic occurrences that do not follow a predictable timescale. Using indicators like RSI on any time frame will not magically illuminate broad human psychology and give you an edge. It is theoretically possible for a single public stock's price to be driven by a range of technical traders who all buy at RSI 30 and sell at RSI 70, after becoming a favorite stock on social media, but it is infinitely more likely for all market participants to have completely different goals. Using Fundamental and Technical Analysis together is actually a good idea for longer term trading of up to 6 months or longer.  The whole idea behind trading with Technical Analysis is to increase the probabilities of a trade going in the desired direction by using uncorrelated indicators that produce the same signal to buy or sell at the same time. For example, you might use a Moving Average (MA) as a buy signal when the price falls for a few days, hits the MA and then reverses and starts moving back up. If however, you also include a Stochastic Oscillator (SO) to indicate when the stock is oversold (under 20%), and if the price rebounds from the MA average at the same time as the Stochastic is crossing over in the oversold position, then this may be a higher probability trade. If you also only trade stocks that are Fundamentally healthy (as fundamentally good stocks are more likely to go up than fundamentally bad stocks) then this might increase the probabilities again. Then if you only buy when the market as a whole is moving up, then this will increase your chances again. A few weeks ago at a seminar, the presenter totalled the men in the room to be 76 and the women in the room to be 8. He then asked what will most likely be the next person to walk in the room - a man or a woman? The statistics are on the side of a wan walking in next. This is what we try to do with Technical Analysis, increase our chances when we take a trade. Of course a woman could be the next person to walk in the room, just like any trade can go against you, and this is why we use money management and risk management and take a small loss when a trade does go against you. Lets look at an example where you could incorporate FA with TA to increase your chances of profits:  Above is a candlestick chart of Select Harvest (SHV), the green line above the price is the perceived value, the pink line is the 40 day MA, the blue line is the EPS, and the white lines is the Stochastic Oscillator (above 80% being overbought and below 20% is oversold). From Feb 2015 to start of Aug 2015 the stock was uptrending, since then the price reversed and started to downtrend. The stock was determined to be fundamentally good early in 2015 with the perceived value gradually increasing and greater than the share price, and the EPS starting to increase regularly from mid April. Thus, as the stock is seen as fundamentally healthy any price reversal in the vicinity of the MA could be seen as a buy opportunity. In fact there where 2 such opportunities on 31st March and 11th June where price had reversed and rebounded off the MA whist the SO crossed over in or near the oversold area. The price did reverse and then rebounded off the MA again on 9th July, however the SO was not in or near the oversold area on this occasion, so not as high in probability terms. The price still rebounded and went up again, however another momentum indicator (not shown here) shows some bearish divergence in this case - so another reason to possibly keep away at this point in time. A good signal to get out of the trade, that is your stop loss has not already taken you out, is when the price breaks and closes below the MA line. This occurred on 7th August. So if we had bought on the first signal on 31st March for $7.41 and sold when the priced broke through the MA on 7th August for $11.76, we would have made a profit of approx. 59% in just over 4 months. If bought on the second signal on 11th June for $9.98 and again sold on 7th August for $11.76, we would have made about 18% in under 2 months. So the fundamentals, the Price (in relation to MA) and the SO where all lining up to provide two high probability trades. Of course you would need to incorporate you risk management (including stops) in case the price did not continue upwards after you bought. If the market is also moving up on the day of the signal this will further increase your chances.  Unless you day trade, which I would avoid, a good way to enter your trades after a signal is to enter a stop buy order after market close to buy if the price moves above the high of the signal day. That way if the market and the stock open and move lower during the day after the signal you avoid entering the trade altogether. This can be incorporated as part of your risk management and trading rules. After the price broke down through the MA we can see that a downtrend commenced which is still current today (in fact I just took a short trade on this stock yesterday). We can also see that the perceived value, whilst still above the price, has reached a peak and is currently moving downwards and the EPS after being flat for a few months has just moved down for the first time in 10 months. So maybe the fundamentals are starting to waver a bit on this stock. It may be a good stock to continue shorting into the future. So basically you can continue using Fundamental Analysis to select which stocks to buy, place them in a watch-list, and then use Technical Analysis to determine when these stocks are starting to uptrend and use a combination of uncorrelated indicators to produce higher probability signals for when to enter your trades. A technically strong stock or market is simply a stock or market which is up-trending and has been up-trending for a while. Just as a fundamentally strong stock is one with good fundamentals (a stock that is healthy and making higher profits year after year and continually improving), a technically strong stock has a healthy uptrend that continues to go up and up. Apple was technically strong until it hit $700 (its price stayed above the 200 day MA for a long period until after it hit $700, then broke down through the 200 day MA shortly after - the uptrend was over). I will usually buy stocks which are both fundamentally and technically strong, as a technically strong stock will generally stay technically strong longer if it also has strong and good fundamentals. "Strategy would be my top factor.  While this may be implied, I do think it helps to have an idea of what is causing the buy and sell signals in speculating as I'd rather follow a strategy than try to figure things out completely from scratch that doesn't quite make sense to me. There are generally a couple of different schools of analysis that may be worth passing along: Fundamental Analysis:Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Technical Analysis:In finance, technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis, which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis which states that stock market prices are essentially unpredictable. There are tools like ""Stock Screeners"" that will let you filter based on various criteria to use each analysis in a mix.  There are various strategies one could use.  Wikipedia under Stock Speculator lists: ""Several different types of stock trading strategies or approaches exist including day trading, trend following, market making, scalping (trading), momentum trading, trading the news, and arbitrage.""  Thus, I'd advise research what approach are you wanting to use as the ""Make it up as we go along losing real money all the way"" wouldn't be my suggested approach. There is something to be said for there being numerous columnists and newsletter peddlers if you want other ideas but I would suggest having a strategy before putting one's toe in the water." "Yes, there is a very good Return vs Risk graph put out at riskgrades.com.  Look at it soon, because it will be unavailable after 6-30-11.  The RA (return analysis) graph is what I think you are looking for. The first graph shown is an ""Average Return"", which I was told was for a 3 year period.  Three period returns of 3, 6 and 12 months, are also available.  You can specify the ticker symbols of funds or stocks you want a display of.  For funds, the return includes price and distributions (total return), but only price movement for stocks - per site webmaster. I've used the graphs for a few years, since Forbes identified it as a ""Best of the Web"" site.  Initially, I found numerous problems with some of the data and was able to work with the webmaster to correct them.  Lately though, they have NOT been correcting problems that I bring to their attention.  For example, try the symbols MUTHX, EDITX, AWSHX and you'll see that the Risk Grades on the graphs are seriously in error, and compress the graph results and cause overwriting and poor readability. If anyone knows of a similar product, I'd like to know about it.  Thanks,  George" Pivots Points are significant levels technical analysts can use to determine directional movement, support and resistance. Pivot Points use the prior period's high, low and close to formulate future support and resistance. In this regard, Pivot Points are predictive or leading indicators. There are at least five different versions of Pivot Points. I will focus on Standard Pivot Points here as they are the simplest. If you are looking to trade off daily charts you would work out your Pivot Points from the prior month's data. For example, Pivot Points for first trading day of February would be based on the high, low and close for January. They remain the same for the entire month of February. New Pivot Points would then be calculated on the first trading day of March using the high, low and close for February. To work out the Standard Pivot Points you use the High, Low and Close from the previous period (i.e. for daily charts it would be from the previous month) in the following formulas: You will now have 5 horizontal lines: P, R1, R2, S1 and S2 which will set the general tone for price action over the next month. A move above the Pivot Point P suggests strength with a target to the first resistance R1. A break above first resistance shows even more strength with a target to the second resistance level R2. The converse is true on the downside. A move below the Pivot Point P suggests weakness with a target to the first support level S1. A break below the first support level shows even more weakness with a target to the second support level S2. The second resistance and support levels (R2 & S2) can also be used to identify potentially overbought and oversold situations. A move above the second resistance level R2 would show strength, but it would also indicate an overbought situation that could give way to a pullback. Similarly, a move below the second support level S2 would show weakness, but would also suggest a short-term oversold condition that could give way to a bounce. This could be used together with a momentum indicator such as RSI or Stochastic to confirm overbought or oversold conditions.  Pivot Points offer a methodology to determine price direction and then set support and resistance levels, however, it is important to confirm Pivot Point signals with other technical analysis indicators, such as candle stick reversal patterns, stochastic and general Support and Resistance Levels in the price action. These pivot points can be handy but I actually haven’t used them for trade setups and entries myself. I prefer to use candle sticks together with stochastic to determine potential turning points and then take out trades based on these. You can then use the Pivot Points Resistance and Support levels to help you estimate profit targets or areas to start becoming cautious and start tightening your stops. Say, for example, you have gone long from a signal you got a few days ago, you are now in profit and the price is now approaching R2 whilst the Stochastic is approaching overbought, you might want to start tightening your stop loss as you might expect some weakness in the price in the near future. If prices continue up you keep increasing your profits, if prices do reverse then you keep the majority of your existing profits. This would become part of your trade management. If you are after finding potential market turning points and take out trades based on these, then I would suggest using candlestick charting reversal patterns for your trade setups. The patterns I like to use most in my trading can be described as either the Hammer or One White Soldier for Bullish reversals and Shooting Star or One Black Crow for Bearish reversals. Below are diagrams of where to place your entries and exits on both Bullish and Bearish reversal patterns. Bullish Reversal Pattern   So after some period of weakness in the price you would look for a bullish day where the price closes above the previous day’s high, you place your buy order here just before market close and place your initial stop just below the low of the day. You would apply this either for an uptrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the support line. The trade is reinforced if the Stochastic is in or near the oversold and crossing back upwards, volume on the up day is higher than volume on the down days, and the market as a whole is moving up as well. The benefit with this entry is that you are in early so you capture any bullish move up at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves up you would move your stop loss to just below the low of each day. Alternative Bullish Reversal Entry  An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop buy order to buy at the open of next trading day just above the high of the bullish green candle. Your stop is placed exactly the same, just below the low of the green bullish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bullish news prior to and at the next open, so miss out on some potential profits if prices do gap up at the open. This may also increase your loss on the trade if the prices gaps up then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. Bearish Reversal Pattern   So after some short period of strength in the price you would look for a bearish day where the price closes below the previous day’s low, you place your sell short order here just before market close and place your initial stop just above the high of the day. You would apply this either for an downtrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the resistance line. The trade is reinforced if the Stochastic is in or near the overbought and crossing back downwards, volume on the up day is higher than volume on the up days, and the market as a whole is moving down as well. The benefit with this entry is that you are in early so you capture any bearish move down at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves down you would move your stop loss to just above the high of each day. Alternative Bearish Reversal Entry   An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop sell short order to sell at the open of next trading day just below the low of the bearish red candle. Your stop is placed exactly the same, just above the high of the red bearish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bearish news prior to and at the next open, so miss out on some potential profits if prices do gap down at the open. This may also increase your loss on the trade if the prices gaps down then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. You could also trade other candle stick patterns is similar ways. And with the long entries you can also use them to get into the market with longer term trend following strategies, you would usually just use a larger stop for longer term trading. To determine the size of your order you would use the price difference between your entry and your stop. You should not be risking more than 1% of your trading capital on any one trade. So if your trading capital is $20,000 your risk per trade should be $200. If you were looking to place your buy at 5.00 and had your initial stop at $4.60, you would divide $200 by $0.40 to get 500 stocks to buy. Using this form of money management you keep your losses down to a maximum of $200 (some trades may be a bit higher due to some slippage which you should allow for in your trading plan), which becomes your R-multiple. Your aim is to have your average win at 3R or higher (3 x your average loss), which will give you a positive expectancy even with a win ratio under 50%. Once you have written down your trading rules you can search stock charts for potential setups. When you find one you can backtest the chart for similar setup over the past few years. For each setup in the past jot down the prices you would have entered at, where you would have set your stop, work out your R, and go day by day, moving your stop as you go, and see where you would have been stopped out. Work out your profit or loss in terms of R for each setup and then add them up. If you get a positive R multiple, then this may be a good stock to trade on this setup. If you get a negative R multiple, then maybe give this stock a miss and look for the next setup. You can setup watch-lists of stocks that perform well for both long setups and short setups, and then trade these stocks when you get a new signal. It can take some time starting off, but once you have got your watch-lists for a particular setup, you just need to keep monitoring those stocks. You can create other watch-lists for other type of setups you have backtested as well.