In our improvised school of trading and trading tools the time has come in order to move forward and gain some additional knowledge of the trading tools.
Today it is time to talk about another little tool that is going to be extremely helpful if our future trades. We are talking of course about leading and lagging indicators. What are these and can they really help you become rich? Let’s look closer.
A leading indicator is an indicator that gives a signal before a trend occurs.
WOW! Something that can tell a trend before it even started! Shut down the internet we have cracked the code, goodbye! But oh, wait. Not so fast. It seems that leading indicator are at fault of giving out false predictions quite often I would say.
When trading by leaning on leading trend you are going to have to endure an awful lot of false alarms, or fakeouts, as they are called. Leading indicators are widely known for giving out information that is not really coming to life… anytime.
And there is, of course, lagging indicators. And I have to admit, the word ’lag’ does not have a good connotation in our mind. It is something that is slow and spoils the entire experience. But in this case something that is lagging is actually better that the other option.
You see, lagging indicator is an indicator that give a signals after a trend begins. So it is much more fail proof system, to look after a lagging indicator that looking after the leading indicator.
Lagging bar is perfect for having enormous earnings in the few first bars of the trend, as it is THE place for the earnings to happen. The downside of this system is that you are going to be a bit late arrival for the trend, but at least you are going to be right inside the trend and you are not going to be viewed as someone who made a rush decision according to the unfinished trend.
What are these and can they really help you become rich? Let’s look closer.
So, it is that easy to read lagging and leading indicators. And while both of them are legitimate members of trading tools club, it is still easy to see which one is going to be better for you in the long run and which one is going to bring you more losses.
The choice is up to you after all.
