Lagging indicators display information that shows what a stock’s price has already done. For example, a Trend Lines or Moving Average (MA) reflects how the price of a stock has changed in the past. These MAs are not predictive and explicitly represent historical data.
Leading indicators suggest or somewhat predict the future movement in a stock’s price. Many times a lagging indicator is analyzed mathematically to determine how fast its MA is changing from day-to-day. The changing value (or speed) determined is used to plot an oscillator that swings high and low. Some oscillators start to move away from an overbought or oversold threshold and can be used to speculate a new change in price direction (either up or down). Here are a few Leading and Lagging indicator examples:
Leading Indicator:
- Stochastic Oscillator
- Williams %R
- Relative Strength Index (RSI)
- Commodity Channel Index (CCI)
- Momentum
Lagging Indicator:
- MACD (has a slight leading element when it indicates momentum)
- Moving Averages (MA)
- Support and Resistance Trend Lines