In, an indicator is a tool that collects and processes data and then displays this information on or below a to help make trading decisions. Their basic function is to "indicate" the , or whether an asset is or .
Indicators ultimately provide a clearer picture of what is happening in the markets and help to discern the likely future.
There are a large variety of indicators and different ones have different functions. The choice as to which indicators are used is ultimately down to the trader and the systems being traded.
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A leading indicator provides a signal before a certain event or price action occurs.
It is able to provide signals ahead of time because it measures the rate at which the price change is happening. If the momentum of the price change is measured and it can be deduced that the rate of price change is perhaps slowing, then the indication is that a change in price direction may occur.
Most leading indicators come in the form of. An oscillator indicates whether an asset is overbought (showing a likelihood that the price will to the downside), or oversold (showing a likelihood that the price will reverse to the upside), when the price is .
A lagging indicator is used to confirm the price action. For example, if a trader is looking at a price chart, a lagging indicator will be able to confirm the trend direction and how strong it is. Lagging indicators will also help confirm a reversal in price direction.
Lagging indicators usually come in the form of.
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