As we’ve discussed, different indicators will have distinct qualities and should be used for specific purposes. Leading indicators point towards future events. Lagging indicators are used to confirm something that has already happened. So, when should you use them?
Leading indicators are typically useful for short- and mid-term analysis. They are used when analysts anticipate a trend and are looking for statistical tools to back up their hypothesis. Especially when it comes to economics, leading indicators can be particularly useful to predict periods of recession.
When it comes to trading and technical analysis, leading indicators can also be used for their predictive qualities. However, no special indicator can predict the future, so these forecasts should always be taken with a grain of salt.
Lagging indicators are used to confirm events and trends that had already happened, or are already underway. This may seem redundant, but it can be very useful. Lagging indicators can bring certain aspects of the market to the spotlight that otherwise would remain hidden. As such, lagging indicators are typically applied to longer-term chart analysis.