A:

An indicator is anything that can be used to predict future financial or economic trends. For example, the social and economic statistics published by accredited sources such as U.S. government departments are indicators. Popular indicators include unemployment rates, housing starts, inflationary indexes and consumer confidence. Official indicators must meet certain set criteria; there are three categories of indicators, classified according to the types of predictions they make.

Leading - These types of indicators signal future events. Think of how the amber traffic light indicates the coming of the red light. In the world of finance, leading indicators work the same way but are less accurate than the street light. Bond yields are thought to be a good leading indicator of the stock market because bond traders anticipate and speculate trends in the economy (even though they aren't always right).

Lagging - A lagging indicator is one that follows an event. Back to our traffic light example: the amber light is a lagging indicator for the green light because amber trails green. The importance of a lagging indicator is its ability to confirm that a pattern is occurring or about to occur. Unemployment is one of the most popular lagging indicators. If the unemployment rate is rising, it indicates that the economy has been doing poorly.

Coincident - These indicators occur at approximately the same time as the conditions they signify. In our traffic light example, the green light would be a coincidental indicator of the associated pedestrian walk signal. Rather than predicting future events, these types of indicators change at the same time as the economy or stock market. Personal income is a coincidental indicator for the economy: high personal income rates will coincide with a strong economy.

(For a detailed list of economic indicators and their providers, see Economic Indicators.)

RELATED FAQS
  1. What is the difference between market indicators and economic indicators?

    Read about the differences between technical market indicators and general economic indicators, and learn how traders and ... Read Answer >>
  2. What are the most common market indicators experienced traders follow?

    Take a look at some of the most popular market indicators used by technical analysts, including the advance/decline line ... Read Answer >>
  3. How do I start using technical analysis?

    Technical analysis is a method of analyzing securities by evaluating current and historical price and/or volume activity. ... Read Answer >>
  4. How do I invest or trade market indicators?

    Read about how investors can trade actual market indicators, such as the S&P 500 Index, rather than specific stocks or commodities. Read Answer >>
  5. What is a common strategy traders implement when using the Money Flow indicator?

    Learn a common trading strategy traders implement with the money flow indicator to identify profitable trade entry and exit ... Read Answer >>
  6. What economic indicators are important to consider when investing in the retail sector?

    Learn why the unemployment rate and Consumer Confidence Index are two of the best economic indicators when investing in the ... Read Answer >>
Related Articles
  1. Trading

    Trading Around Key Options Indicators

    Learn the key economic indicators to help predict market movement.
  2. Insights

    What is a Leading Indicator?

    A leading indicator is a measurable economic factor that tends to change right before the economy starts to change.
  3. Investing

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  4. Trading

    4 Key Indicators That Move The Markets

    Find out what reports to watch in order to anticipate and react to market movements.
  5. Trading

    What is an Indicator?

    Investors use indicators to measure economic conditions and forecast financial and economic trends.
  6. Insights

    Introduction To Coincident And Lagging Economic Indicators

    Investors can learn a lot, or very little, from these indicators once they know how to use them.
  7. Trading

    How To Build A Trading Indicator

    Wondering how people like Elliott and Gann built their famous trading tools? Learn the basics of constructing an indicator.
  8. Investing

    Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
RELATED TERMS
  1. Lagging Indicator

    1. A measurable economic factor that changes after the economy ...
  2. Economic Indicator

    An economic indicator is a piece of economic data, usually of ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy ...
  4. Coincident Indicator

    A metric which shows the current state of economic activity within ...
  5. Indicator

    Indicators are statistics used to measure current conditions ...
  6. Hybrid Indicator

    A technical indicator that combines core elements of chart analysis ...
Hot Definitions
  1. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  2. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  3. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  4. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  5. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  6. Four Percent Rule

    A rule of thumb used to determine the amount of funds to withdraw from a retirement account each year. The four percent rule ...
Trading Center