Lagging indicators are TA tools that provide signals after a trend has already started. While they do not predict future price movements, they can offer insights into ongoing market trends and momentum. Traders often use lagging indicators to confirm the strength and direction of existing trends.
Here are a few examples of lagging indicators used by crypto traders:
1. Moving averages (MAs). Moving averages smooth out price data to create trend-following indicators that highlight the direction of a trend. They help traders identify support and resistance levels, as well as potential entry and exit points. By analyzing the relationship between different MAs, traders can generally measure the strength of a trend and anticipate potential trend reversals.
2. Moving average convergence divergence (MACD). The MACD is a trend-following momentum indicator that consists of two lines – the MACD line and the signal line. Traders can use the MACD to identify bullish and bearish crossovers, which signal potential changes in trend direction. Additionally, divergence between the MACD line and price action can indicate the potential strength of a trend or a possible trend reversal.
3. Parabolic SAR. The Parabolic SAR is a lagging indicator designed to identify potential reversal points in price trends. It appears as a series of dots above or below price bars, depending on the direction of the trend (see image below). When the dots are below price bars, it suggests an uptrend, while dots above price bars indicate a downtrend. Traders can use the Parabolic SAR to confirm trend direction, determine potential entry and exit points, and manage stop-loss levels.
4. Bollinger Bands (BB). Bollinger Bands are a lagging indicator that consists of a simple moving average (SMA) and two standard deviation bands plotted above and below it. They dynamically adjust to market volatility, expanding during periods of high volatility and contracting during low market volatility. Traders can use Bollinger Bands to identify overbought and oversold conditions, as well as potential trend continuation or reversal points.
Learn more: Leading and Lagging Indicators Explained.