4 March 2021

Leading and Lagging Indicators

By DICC Institute

All kind of technical analysis mainly revolves around indicators whether you are a day or a shift trader the fact remains the same. As we are aware that without technical indicators it is not possible to get information regarding price actions, market trends and charts patterns and so much more. These technical indicators are broadly classified into two broad categories which are leading and lagging indicators. One of these is used as a tool that attempts to forecast future price in trading while the other is used to provide relevant feedback as well as confirmation of all kind of market trends going on. Now I know that many of you must be curious to know about these indicators. Then you are at the correct article as in this article we are briefly going to discuss leading and lagging indicators in the world of trading. Though this maybe we will able to help you chose the best-fit indicator for your trading style.

Also Read: How to trade futures commodities and Stock index futures in India

Leading and lagging indicators can be defined as tools that are used in technical analysis. This simple means evaluating the strength as well as weakness of the financial market which is a piece of crucial information for any trader. The important thing that should be noted here that the leading indicators change just before any new market trend. While lagging indicators is responsible to provide all insight information about the historical data which is associated with any particular market. There are predictive signals provided on the market movements by the leading indicators. While in the case of lagging indicators the signal is mainly provided after the trend is already gone underway. By this, we can understand why what the word lag indicates in the lagging indicators. In the market investors as well, traders make use of both the indicators before concluding the final decision as their roles provide them with different pieces of information which are kept together to find the real state of the trend in the market. The other most relevant information these indicators provide us with is the identification of the ideal entry as well as exit points.

Also Read: How to Invest in Mutual Funds and How to Invest in the Stock Market

Table of Contents

What are the leading indicators?

The main concept the leading indicators make use of is the past prices as through this it’s able to forecast the future price action that will be taking place in the market. In simple and short they are leading the price. Let’s try to understand it in a simpler way such as the traders make use of these indicators to anticipate the price movement ahead of the actual timing which is the future it can surely be termed as a future prediction in short. This piece of information is quite crucial for them as through this they can open and close their trades at the beginning of the movement as well rise the trade when they see profit in the market trend. There are many illusions in the market which make the concept easier to be understood as the rise and fall can be seen beforehand when the market is not experiencing any such thing. The leading indicators will typically be able to identify whether the market is overbought or oversold. This will help the traders to decide the entry points and exit points from the market. In here overbought refers that the traders need to pull back from their trading and even there can be chances of complete exit too. If there is something in the mind of the traders than can be bought this time as prices are going to be dropped while in the case of oversold means sell something as the price is going to raised eventually. These are rough figure in short.

What are the lagging indicators?

These indicators also make use of past data and inform the traders to take relevant actions. But here rather the predicting what is going to happen in the future it is mainly talked about the current trend that is eventually taking place in the market at present. The current trend direction as well as strength is been indicated particularly. Here these indicators are mainly lagging the current state of the market. So, though this the investors and traders can recognize and make sure that is the particular trend going on is a false alarm or something identical to what they came across while using the lagging indicators. this is an important piece of information when you are someone who is dealing with buying and selling as a career. Now you must be able to understand how the investors and traders with some sort of experience rarely make wrong decisions while dealing with the market. Lagging indicators can be seen only when the price change is been recognized in the market. This simply means anybody aware of this analysis can easily determine the price action just by witnessing a few up and down in the market. It is magical but makes logic at most of the points. These indicators are typically drawn directly on the fare price charts and are of course act as one of the great tools in trading. Lagging indicators are a crucial tool that is been used to a great extent by a lot of traders nowadays.

Join Stock Market Course from DICC to learn more about leading and lagging indicators and how to implement them properly in stock market.