Why Leading Indicators Are Better Than Lagging Indicators in Trading the Stock Market

"Be fearful when others are greedy, and be greedy when others are fearful." - Warren Buffett

"92 % of New traders fail in the stock market trading because of lack of appropriate tools and technique" —  Trading Direction

In Share markets trading, beginner traders employ various tools to analyze price movements. Among these tools, indicators play a pivotal role, helping traders to make best decisions about when to buy or sell. But not all indicators gives best signal for trading. There's are leading and lagging indicators. So, which should you trade with for Profitable trading.

Leading Indicators are important support and resistance Which are same and will not change as per prices movements. They are best tool to predict future price movements. They are proactive, providing early signals, and are ideal for traders seeking to catch a trend. Examples, Price Action, CPR indicator

Lagging Indicators, Show signal late and they rely on past price data to draw their conclusions. They may be confirmatory in nature. These indicators can provide reassurance to traders already on a trend. Example Moving Averages, Bollinger  Band, RSI, MACD etc.

1. Standard Central Pivot Range (CPR) : The Standard Central Pivot Range is like a GPS for traders navigating the markets. It draw potential support and resistance levels ahead of time. Just as your GPS anticipates a turn before you reach it, CPR gives traders an early glimpse of potential market turning points. 

CPR by Trading Direction ( Free available on Trading view platform is y favorites' indicator for intraday trading. 

Hence CPR by Trading Direction is favorite among day traders looking for precision in their entries and exits.

2. Fibonacci Retracement : Fibonacci retracement levels are like the sweet spot left behind by market movements. They're derived from the Fibonacci sequence and can help traders identify potential reversal levels. Much like a treasure hunter following a map, traders use Fibonacci retracement to discover hidden trading opportunities.

Now, I  will explain you about Lagging indicator,

1. Moving averages : It is based on historical price data and smooth out the fluctuations in prices over a specified period. 

• EMA are dependent on historical price data.
• Smoothing effect results in a lag behind the actual price movements.
• Delayed Signals: Because moving averages are calculated from past prices, they generate signals after a trend has already begun or reversed. For example, a moving average crossover (when a short-term moving average 20 EMA crosses above or below a longer-term moving average 200 EMA ) may indicate a trend change after the new trend has started.

• In above picture Blue color line indicates 20 Exponential moving average and Red color line is 200 period Exponential moving average.
• While moving averages are lagging indicators, they play a crucial role in technical analysis by providing context and confirming trends. I combine leading indicator with one lagging indicator, moving averages to develop more comprehensive trading strategies.
  

2. Moving Average Convergence Divergence (MACD) : MACD is the storyteller of trends, revealing the momentum and direction of a trend. It's like reading a book - you need some chapters to understand the whole story. 

3. Relative Strength Index (RSI): RSI is the watchful guardian of the market, always looking out for overbought or oversold conditions. It measures the speed and change of price movements. While it doesn't predict trends, it provides invaluable confirmation. Hence accuracy of RSI is very less compared to CPR indicator.

4. Bollinger Bands : It is the boundaries of market volatility. These bands contract and expand, reflecting market conditions. They are like the walls of a rubber room - when price action bounces off them, traders get a late signals. 

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Summary and key takeaway,

92% of new traders fail due to inadequate tools. Trading Direction tried and tested strategies based on leading and lagging indicators helping many retail traders. You can use CPR with price action as a potent leading tool and Moving Averages as a lagging confirmation. Synergizing these indicators crafts a successful trading strategy."