What is a lagging indicator?
A lagging indicator is any measurable or observable variable that moves or changes direction after a change has occurred in a target variable of interest. The lagging indicators confirm trends and trend changes. They can be useful for assessing the trend of the general economy, as tools in trading operations and strategy, or as signals to buy or sell assets in the financial markets.
Key points to remember
- A lagging indicator is something that changes or occurs after a significant change in a target variable.
- A lagged technical indicator is one that tracks the price action of an underlying asset, and traders use it to generate trading signals or to confirm the strength of a given trend.
- In business, a lagging indicator is a key performance indicator that reflects a certain measure of production or past performance that can be seen in operational data or financial statements and reflects the impact of management decisions or strategy. commercial.
Understanding overdue indicators
A lagging indicator is a financial sign that only appears after a major change. Therefore, lagging indicators confirm long-term trends, but do not predict them. This is useful because many leading indicators are often volatile and their short-term fluctuations can mask turning points or lead to false signals. Examining lagging indicators is one way to confirm whether a change in the economy has actually occurred.
Economic indicators lagging behind
The Conference Board of the United States publishes a monthly index of lagging indicators as well as its index of leading indicators. These include lagged indicators such as the average duration of unemployment, the average prime rate applied by banks and the change in the consumer price index for services. Some general examples of lagging indicators include the unemployment rate, corporate profits and the cost of labor per unit of output. Interest rates can also be good lagging indicators, as rates change in response to severe market movements. Other lagging indicators are economic measures, such as gross domestic product (GDP), the consumer price index (CPI) and the trade balance. These indicators differ from leading indicators, such as retail sales and the stock market, which are used to forecast and forecast.
Technical delay indicators
Another type of lagging indicator is a technical indicator that lags behind the current price of an asset, which occurs after a certain price movement has already occurred. An example of a lagging technical indicator is a moving average crossover. Unlike other lagging indicators that compare different economic variables to each other, a technical indicator compares the value of a given variable to its own moving average over a given interval or other historical characteristics. Technical traders use a short term average above a long term average as confirmation when placing buy orders, as this suggests an increase in momentum. The disadvantage of using this method in asset trading is that a significant movement may already have taken place, resulting in the trader’s position being too late. (Note that a similar technical approach can be applied to economic indicators such as GDP or other measures of economic performance, as lagging indicators to confirm a change in trend.)
Trade delay indicators
Delayed indicators in business are a kind of key performance indicator (KPI) that measures the performance of the business after the fact, such as sales, customer satisfaction or loss of income. They can be difficult, if not impossible, to influence directly. Because they are at least partially the result of business decisions and operations, they provide insight into the results achieved by the way a business is run. Businesses can also track leading indicators that measure internal performance, such as customer engagement or employee satisfaction, which can be more directly influenced and cause late indicator changes. Businesses can use Business Intelligence tools such as dashboards to measure, track and compare various leading and lagging performance indicators.