Lagging Indicator

AAA

DEFINITION of 'Lagging Indicator'

1. A measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend.

2. A technical indicator that trails the price action of an underlying asset, and is used by traders to generate transaction signals or to confirm the strength of a given trend. Since these indicators lag the price of the asset, a significant move will generally occur before the indicator is able to provide a signal.

INVESTOPEDIA EXPLAINS 'Lagging Indicator'

1. Lagging indicators confirm long-term trends, but they do not predict them. Some examples are unemployment, corporate profits and labor cost per unit of output. Interest rates are another good lagging indicator; rates change after severe market changes.

2. An example of a lagging indicator is a moving average crossover, because it occurs after a certain price move has already happened. Technical traders use a short-term average crossing above a long-term average as confirmation when placing buy orders since it suggests an increase in momentum. The drawback of using this method is that a significant move may have already occurred, resulting in the trader entering a position too late.

RELATED TERMS
  1. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth ...
  3. Structural Unemployment

    A longer-lasting form of unemployment caused by fundamental shifts ...
  4. Building Permits

    A type of authorization that must be granted by a government ...
  5. Coincident Indicator

    A metric which shows the current state of economic activity within ...
  6. Crossover

    The point on a stock chart when a security and an indicator intersect. ...
RELATED FAQS
  1. Are exponential moving averages more effective than simple or weighted moving averages?

    An exponential moving average (EMA) uses an exponentially weighted multiplier to give more weight to recent prices, which ... Read Full Answer >>
  2. What are the main differences between momentum and trend?

    Though they may initially appear similar, real differences exist between the concepts of momentum and trend. They are two ... Read Full Answer >>
  3. How effective is creating trade entries after spotting a Golden Cross pattern?

    The effectiveness of a trading strategy based on the golden cross pattern can vary widely from case to case. The golden cross ... Read Full Answer >>
  4. What are the main drawbacks of a Double Exponential Moving Average -DEMA?

    The most popular form of technical indicator is likely the moving average. Traders and analysts are taught that the "trend ... Read Full Answer >>
  5. How do I create a trading strategy with Bollinger Bands® and moving averages?

    Bollinger Bands are a popular technical volatility indicator. They place upper and lower bounds around the trading ranges ... Read Full Answer >>
  6. What are leading, lagging and coincident indicators? What are they for?

    An indicator is anything that can be used to predict future financial or economic trends. For example, the social and economic ... Read Full Answer >>
Related Articles
  1. Active Trading

    Finding The Trend With Aroon

    Don't be confused about whether a long-term trend will continue, stall or reverse.
  2. Mutual Funds & ETFs

    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.
  3. Economics

    Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.
  4. Active Trading

    Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.
  5. Retirement

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  6. Forex Education

    A Trader's Guide To Using Fractals

    This reversal pattern can make sense of the seeming randomness of market movements and improve your trading.
  7. Chart Advisor

    How Investors are Profiting from Cyber Crime Fear

    An ETF that has seen significant gains this year in the growing field of cyber security, and the threat and fear of cyber attacks and cyber crime.
  8. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  9. Economics

    The Most Likely Outcome For Greece

    After more than five years of a Greek drama, most of us have become fatigued with hearing about Greece’s debt problems, the one issue that won’t go away.
  10. Economics

    How Does a Company Use Raw Materials?

    Raw materials are the basic components of a finished product.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!