Linear Regression Slope Indicator
The Linear Regression Slope technical indicator calculates the slope/gradient value of regression lines which involve the current price bar and the previous n-1 price bar (where n = regression periods)
This Indicator calculates this value and updates it for each price candlestick loaded in the price chart.
The Indicator is calculated from the Linear Regression Technical Indicator. The linear regression indicator plots the trend of the price chart over a specified duration of time and this market trend is determined by plotting a Linear Regression Trend Line using the "least squares fit" method. The slope of this trend line is then calculated and this forms the linear regression indicator. The example below shows the indicator.
Linear Regression Slope Forex Trading Indicator
The slope values are then smoothed by multiplying the raw slope indicator values by 100 and then dividing this value by the price
Linear Slope Regression Indicator = (raw value of slope * 100 / price).
The smoothing of the slope values is essential when comparing markets that are volatile and trade within wide price ranges for each price candlestick. The smoothed slope value will show the percent change in the price per every candlestick used to calculate the regression (best fit) line.
Technical Analysis of Linear Regression Slope Indicator
- If the smoothing of the slope is 0.30, then the regression line is rising and adjusting at a rate of 0.30% for every candlestick.
- If the smoothing of the slope of -0.30, then the regression line is going down and adjusting at a rate of -0.30% for every candlestick.
The regression slope indicator is displayed as a bi-color histogram that oscillates above and below zero center line. The center line that is used to generate Forex trading signals is set at the 0 level.
- A rising slope (greater than the previous value of 1 candlestick ago) is displayed in the Blue/Upward Slope color,
- A declining slope (lower than the previous value of 1 candlestick ago) is displayed in the Red/Downward Slope color.