LEADING AND LAGGING INDICATORS IN FOREX TRADING
There are two groups of technical indicators available in your MetaTrader 4 trading platform: Leading and lagging indicators. In this article we will present to you a brief description of these technical trading tools.
A Lagging indicator is the graphical representation of a mathematical expression that generates signs of a new currency price tendency according to information received in the past. "Lag" is a statistical feature in time series that means that past values of a random variable (currency pairs, in this case) content lagged information that determine the actual value of that variable. The most famous lagging indicator is called "Moving Average"; it is just a mathematical average of the last K prices (determined by the trader according to his preferences). The main concept behind these lagging indicators is using information received in the past to show a new trend price that has begun now.
A Leading indicator is the graphical representation of a mathematical expression that predicts future values of random variable taking all the information contained until the last period of time. Your Forex trading platform has many Leading indicators; in a past article, we gave a description of one of the most famous leading indicators: The stochastic oscillator; as you should remember this indicator gives you two bands, if one of these bands is broken you have a potential sign of an overbought or an oversold currency market. The main concept in these indicators is that "the present is as the past, in probabilistic terms", it means that the probability of an increase of the price above a determined value is the same today than yesterday. This statement is a source of dispute among many mathematicians across the world; in a future article we are going to review some statistical tools to review this statement in Forex Trading.
You must know both, leading and lagging indicators, to determine if you prefer to use only one or both kind of technical indicators. Certainly, it is not clear that leading or lagging indicators have better results, you must discover it!