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Lagging Indicator

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Definition of 'Lagging Indicator'

A lagging indicator is, as the name suggests, an economic indicator that follows the business cycle.

A lagging indicator can also be a technical indicator that trails the price changes for a future, commodity or stock on a chart. These indicators can be used to confirm a move and will generally only signal after the move is underway.

This type of indicator is a confirming indicator and has no predictive value. That does not mean to say that it does not have a place in trading. Strategies can use lagging indicators to add to or remove from positions and money manage their portfolios, strategies, and active trades based on what the lagging indicators are telling them.

Lagging economic indicators include unemployment, corporate profits, labor cost per unit of output, interest rates.

Why are interest rates good lagging indicators? Interest rates are changed after a severe market change. Severe market changes can only be measured by collecting data from the economy (other Economic Indicators). This data reflects the past performance of the economy. Interest rate changes are usually made in order to prevent the economy extending its current direction or overshooting the intended direction.

Lagging technical indicators include moving average crossovers of which the MACD is a variation. Traders will look for the short term average to cross over the long term average as a signal. The drawback of using this method is that a significant part of the move may already be over by the time you enter the trade.

Compare to Leading Indicator, Coincident Indicator, and other Economic Indicators.

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