Some thoughts on Indicators - Leading and LaggingLeading and Lagging Indicators
Howkey are leading and lagging indicators to successful trades?
Think of themas guideposts that can help you make better plans.
Planning is apart of life. Without plans, it’s hard to know what your next step should be.That’s why you should always go into a trade with trading plan.
But even thebest-laid plans can go in unexpected directions, right? In trading, there areways to measure plans before and after you execute them. Those tools are whatwe call leading and lagging indicators.
Leadingindicators predict what might happen with a stock. They offer valuable cluesinto the future direction of a stock or a company’s performance.
Laggingindicators measure what happens after the fact. They’re a great way to checkyour execution, for example did your strategy work out as you intented?
What Are Leadingand Lagging Indicators?
Leading and lagging indicators help you plan your trades.
Leadingindicators give insight into the future.
Lagging indicators measure thepast.
A great trading thesis requires both. You need to pick your favourite indicators to come up with ideas about what might happen next. You also need to look back at how stocks played out.
The more you analyse your strategies and results, the stronger you can make both. It’s a cycle that repeats. You want to build your experience and trading intuition.
Coming up with your trading plan and watchlist is only half the battle. Once you place your trade, you have to look back at what the market did. And you need to ask why.
Over time, you’ll have a better understanding of what makes a market move. It may sound strange but you can learn indicators, however you have to earn experience.Leading indicators signal future price movements.
They can help you make an educated guess about where a stock might be headed.
They often use past price action to determine future potential action.It’s not perfect, because past performance never guarantees future results. Leading indicators are indicators able to precede the price movements of a stock due to their predictive qualities.
There are many indicators out there.
Leading Indicators to explore include;
- Support and Resistance Levels
- On Balance Volume
- Fibonacci Retracement
- Awesome Oscillator
Lagging indicators by the very nature of the wording only appear after the effect of the occurrence has taken place and confirm such events.
Lagging Indicators to explore include;
- MACD
- RSI
- VWAP
With both types of indicators there is a quite a number of different onesso explore these and others, test and see if any work for you.
Now some major caveats…
- Many will advocate that indicators should not be used and that one should only focus on price.
- Similarly, others suggest not using one minute candles as they create way too much whiplash and that 5 or 10 are better for day trading
So, in the end it is what you find affinity with, after having tested andreviewed your results as it is you who need faith in your Trading Plan…no oneever said this was going to be easy (otherwise everyone would win and that isnot how an efficient market works!!)
These thoughts have been complied from notes I made over the years, from various sources and I hope they make sense perhaps may provide some insight for you to explore and ponder.
V
PS- apologies for the various fonts as I typed this in word but had to cut and paste rather than inserting whole document...
