Part I. Leading and Lagging Indicators.
Commander in Pips: Up until now, we’ve covered a lot of important topics, different indicators and other interesting parts. Today we start with another interesting part – leading and lagging indicators. Currently a lot of educational projects and material cover this issue not quite in the proper way. So, our task here is to meet you with a classical approach to categorization of different tools into lagging and leading groups, although this approach has some misleading issues. Second, show you the way of categorization that seems to be most correct to me.
To understand the advantages and disadvantages of indicators that we’ve discussed, we will separate them into two groups – yes, “Leading” and “Lagging”. Almost like in song by Chuck Berry “Reeling & Rocking”. The most common approach to this classification points that a leading indicator gives a signal before the new trend or reversal happens. As you’ve guessed already, a lagging indicator gives a signal at some time after the new trend starting has already passed. It’s like lagging behind the trend shifting or reversal point.
Pipruit: Hm, and why we need lagging indicators at all? We can use just leading ones and always will be anticipating the market.
Commander in Pips: Oh, you’re really a smart guy. This is the best idea that I ever heard. But here is very small problem with this idea of yours…
Pipruit: What problem?
Commander in Pips: Probably you will get in at the starting point of every trend, but only if the indicator will catch it correctly every time. And how do you think, is it possible at all?
07-07-2011, 05:36 PM #1Administrator
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Chapter 13, Part I. Leading and Lagging Indicators.
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