We have learned many things about several indicators, so far it may still be good enough in understanding how to use each indicator, we also alluded to the term leading and lagging indicators.
In general, leading and lagging indicators are present in each indicator.
Both functions are to inform market conditions to traders.
But specifically, what distinguishes the two?
Well, we will try to provide an explanation of the leading and lagging indicators.
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Leading indicators are indicators that tend to overtake or lead price movements.
So that in practice they are expected to “lead” traders before making a decision.
Or in other words, the leading indicator gives a signal earlier before the trend occurs.
The advantage of this leading indicator is that it can confirm price movements from a few candles before the trend started.
So it will be very helpful in making entry decisions quickly.
But actually, trading using this leading indicator seems risky but tricky.
Indeed, if using a leading indicator can give a faster entry signal.
But it is also very likely that the signal it points to is a false signal.
Under these conditions, the skill and experience time of each trader is one of the important keys to avoid false signals.
If you are a beginner, use tips to minimize false signals you can do as a reference.
In applying to the chart, these main indicators are generally a category in the Oscillator indicator.
It is a type of technical indicator that can indicate Overbought and Oversold conditions.
If you want to trade using signals from leading indicators, then you can choose the oscillator indicator for example.
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Contrary to leading indicators, lagging indicators tend to be slow in providing entry signals.
So traders may lose the opportunity to get the maximum profit.
In other words, lagging indicators give trading signals after the trend is formed.
Usually, lagging indicators are indicators that fall into the category of indicators with functions to measure the direction of the trend.
So this indicator is also known as the “Trend Following Indicator”.
Even though it’s a bit late giving a signal, it doesn’t mean that you can’t use this lagging indicator.
In certain conditions, lagging indicators will greatly help traders, especially when prices are trending.
With the Trend Following indicator, you will be notified of the right moment for position entry when the trend is strengthening.
So there are some traders who say if you want to get profit in the forex market hence take the trend as your friends.
If you can manage your emotions well, then this Trend Following a strategy can promise maximum profits in the long run.
Some indicators that fall into the lagging indicator category are.
Which is Better Between Leading and Lagging Indicators?
The lagging indicator is important because it provides information on how far prices have been running, how long the period has been taken, and what levels have been achieved.
However, the use of leading indicators is also needed, so you know the right entry point with the opportunity to reap maximum profits.
It would be nice if the use of the two trading indicators can be balanced and adjusted to market conditions.
Because after all the two types of indicators have the advantage and disadvantages of each.
If you understand how the conditions of the market trend, whether it is in a strong trending market, or moving in the range then you will be able to adjust which indicators will better suit these conditions.
- If the market is strong trending, the lagging indicator will be better than the leading indicator.
- Conversely, if prices move ranging or sideways, the leading indicator will be better than the lagging indicator.
In practice, some traders don’t just use one indicator, but some try to use a combination of two or three indicators as we discussed in the previous chapter.
By combining several indicators the hope is to be able to give a trading signal that is higher in the probability of making a profit.
You can use RSI with MACD, or Bollinger bands with Stochastic.
And of course in choosing a timeframe also depends on the trading style that you like.
If you pay attention to the combined indicators on different timeframes, the results will also be different.
Therefore, when combining several indicators should have certain parameters in using timeframes so as to minimize false signals that come.
Forex trading using indicators is one way for traders to make approach the market with technical analysis.
There are many kinds of indicators created by programmers as software for trading tools.
Almost all indicators take previous price data from past history, with a certain formula and used to predict the possibility of future price movements.
Leading and lagging indicators are types of indicators that give different signals, but both use price data from past history.
And future prices, it remains a mystery, if all traders use the same tools, and take the same actions, say 90% use the same indicators.
This allows future price movements to be more predictable, because according to economic laws if demand increases, prices will rise.
But unfortunately, the forex market is very large, consisting of many interests in each market participant, it is not possible that all market participants will have the same interests.