Forex technical indicators shock indicators and momentum indicators.
Line indicator vs. lagging indicator
As of now, you have learned a lot of trading tools, these tools can help you analyze potential trend trading opportunities and range rebound trading opportunities. Now you feel pretty good, right? Let us continue our learning journey.
We want you to deeply understand the strengths and weaknesses of each tool so that you can determine which technical indicator tool can better guide your trading, and which one cannot.
Let’s talk about some concepts first. Indicators can be divided into two types: leading indicators (oscillation indicators) and lagging indicators (momentum indicators).
The leading indicator signals before a new trend or reversal pattern occurs.
The lag indicator sends a signal after the trend starts. In general, it reminds you, “Hey, man, pay attention, the trend has started, and you are missing the best time to trade.”
You are probably thinking, “Well, by using the leading indicator, I will become rich!” Because you can start to profit when the trend just starts.
You should be able to capture the entire trend of trading opportunities in each transaction, but the premise is that the signal sent by the leading indicator is correct every time. This is not the case.
When you use the leading indicator, you will encounter a lot of false market. Leading indicators can be described as “infamous” in sending wrong trading signals, and these signals will eventually mislead your trading.
do you understand? Leading indicators may mislead your trading.
Another option is to use lagging indicators, which will not easily send false signals.
Lagging indicators only send trading signals after prices have clearly formed a trend. The downside is that you may be late for admission.
Usually, we get the most profit when we enter the market at the beginning of the new trend. Therefore, using the lagging indicator, you may miss a lot of profit opportunities because of this, which is not a good thing.