Linear Regression Indices Analysis and Linear Regression Trading Signals
Another name for a regression line is a line of the best fit/best fit line. This indicator plots the market trend of the price over a specified duration of time. The market trend is determined by calculating a Linear Regression Trend-Line using the "least squares fit" method. This method helps to minimize the distance between the price data points and the line of best fit.
Unlike the straight Regression Trend-Line technical indicator, the indicator draws the end values of multiple Linear Regression trend lines. Any single point along the Linear Regression will be equal to the end value of a Regression Trendline, but the resulting trend line looks like the Moving Average.
But unlike the MA, this trading indicator doesn't show as much delay since it is fitting a line onto data points rather than averaging them.
Linear Regression is a prediction of the tomorrow's price drawn today, one day before. When the market prices are steadily higher or lower than the +forecastforecasted price, then a trader can expect them to quickly return to more realistic fore-casted levels.
In other terms, this trading indicator illustrates where the chart prices "should" be trading based on a statistical basis and any disproportionate deviation from the regression line is likely to be short-lived.
Indices Analysis & How to Generate Signals
This indicator allows for price choice, adjusting number of periods and smoothing of price data before applying the calculation & the choice of smoothing type.
This indicator looks like a MA but it has a bi-color representation.
- Bullish Signal (Blue color) - A rising line (greater than its previous value 1 previous bar before) is displayed in the up indices trend blue color, while
- Bearish Signal (Red color) - a declining line (lower than its previous value 1 previous bar before) is displayed in the downtrend red color.
Analysis in Indices
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