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Lagging Indicator Meaning

A measurable economic factor that changes only after the trend it is following has already been established. Examples include unemployment rates or the Consumer Price Index (CPI).

In trading, technical indicators like "Moving Averages" are lagging because they are based on past price action. While lagging indicators cannot predict future price movements, they are essential for "confirming" that a trend is real.

For instance, a "Golden Cross" (where a short-term moving average crosses above a long-term one) is a lagging signal that confirms a shift from a bear market to a bull market. Investors use these indicators to avoid "fakeouts"-temporary price spikes that don't represent a true change in market direction.

By waiting for a lagging indicator to confirm the move, a trader sacrifices some potential profit for a higher degree of certainty that the market has truly shifted.

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