All our technical indicators can be divided into two categories:
- Leading indicators or oscillators
- Relative lagging trend or trend indicator
Although these two can be supplemented, they are more likely to conflict with each other. We are not saying that this or the other can only be used, but you must understand every potential deficiency.
What are leading and lagging indicators? What is the difference between leading indicators and lagging indicators?
Let’s discuss some concepts first. There are two types of indicators: leading and lagging.
The leading indicators and lagging indicators in the foreign exchange indicators are leading indicators and lagging indicators respectively. As the name suggests, leading indicators refer to trading signals before a new market trend or trend reversal occurs, while lagging indicators provide trading signals when the market trend has begun or is basically formed.
What are leading and lagging indicators? What is the difference between leading and lagging indicators?
Under normal circumstances, as long as the leading indicator is correct every time, then a trader using a combination of foreign exchange leading indicators and lagging indicators has a high probability of catching every trend start. But traders need to know that not every time is accurate. When traders use leading indicators, they will experience many false signals, and traders need to pay attention to distinguishing them.
Lagging indicators generally only give clear signals when prices change and two trends are clearly formed. The weakness of lagging indicators is that when a trader finds a trend, the best time to enter the market may have been missed. Because in foreign exchange trading, good profit points are always on the few price lines at the beginning of the trend. Therefore, the use of lagging indicators may cause traders to miss a lot of gains.
Oscillatory indicators and trend-following indicators.
According to the purpose of this course, we broadly classify all technical indicators into two categories: oscillatory indicators and trend following indicators (or momentum indicators). Oscillation indicators are leading indicators, and momentum indicators are lagging indicators.
Although the two can support each other, they are more likely to contradict each other. We are not saying that the two must be used separately, but you should know the potential pitfalls of each.
Regarding the leading indicators and lagging indicators of foreign exchange, I will explain it to you today. Generally speaking, the combination of leading indicators and lagging indicators will have better results. When used alone, there are major drawbacks. Investors also do foreign exchange transactions. We must pay attention to this problem.