4.1 Proactive or Reactive Trading - Leading vs. Lagging Indicators

Leading and lagging technical indicators.
 
How would you like your pips? Depends on who you are!
 
Are you the trigger-happy, quick-on-the-draw kind of trader who must have the entire price move and all of its pips? Leading indicators for you.
 
Are you the safe and sure kind, who’d want a little less of the move but it should be a sure thing? Lagging indicators for you.
 
Leading indicators are those which are created to signal the start of a new trend or a trend reversal before it happens. These indicators may be said to have predictive qualities. We’ll classify them for the purposes of our learning as ‘oscillators’. 
 
The leading indicators are able to you into the trend very quickly. This is a powerful advantage when most of the price movement of the trend happens in its early stages – you grab the early bird advantage!
 
Unfortunately, there is a flip side to this facility. Leading indicators have a nasty habit of giving many false signals – this can cause serious damage to our pips wealth.
 
Lagging indicators follow price movements and give a signal after the turn of trend or reversal. They have less predictive qualities. We shall classify them as ‘momentum indicators’.
 
These offer an alternative to leading indicators. They are not very efficient during non-trending periods but are highly useful during trending periods. This is because these indicators tend to focus more on the trend and produce fewer buy-and-sell signals like the leading indicators. Though entry is late, your trade will likely turn out just right. 
 
However, the downside to using them is that because the signal here is a bit slow, you may miss catching a portion of the trend move.
 

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