Leading And Lagging Indicators.

The term “indicator” refers to a metric whose main task is to point towards a certain situation/aspect etc - in short: to “indicate” something. For example the metric “cost-per-click” indicates how much one has to pay for one click at a certain time on a certain link.

Leading Technical Indicators are the indicators that help to predict possible future trend. Many trading systems use these types of indicators to generate trend reversal signals. However, there is no guarantee that the analyzed security, index or market will reverse its trend after a signal is generated. The common problem with this type of technical studies is that in some cases a trade could be opened too early and the signal could be ignored (no reversal). Examples of such indicators could be volume based technical indicators. Examples of these would be:

1. number of booked impressions for a certain ad position for the coming quarter (e.g. 100000 ad impressions for REC booked for Q2 2007)
2. budget for specific keyword groups for the next quarter (e.g. 100.000 USD for keyword-group “fitness” booked for Q2 2007)
3. number of leads referred by affiliate partner campaigns to a certain product (e.g. 500.000 leads monthly referred by campaign “X” to product “Y”)

Lagging Technical Indicators are the technical indicators that would rather follow a trend then predict its reversal. These studies are more reliable than the leading technical indicators. However they have other problem: in many cases a trade could be opened and closed when it is too late and the trend already in reversal movement. Example of these studies could be MACD, Moving Averages, etc. Examples

1. number of page impressions for a specific product within the past month (e.g. 1 million page impressions for product “X” in August 2006)
2. number of unique users for a specific site (e.g. 100.000 unique users for the sports special “FIFA WM” in June 2006)
3. amount of revenue generated with a specific product

Leading indicators mostly refer to the beginning of the value chain and reflect the drivers and/or causes of value whereas lagging indicators mostly refer to the end of the value chain and reflect the effect certain measures, decisions, actions had.