Linear Regression Analysis & Linear Regression 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 currency price over a specified duration of time. The market trend is determined by calculating a Linear Regression Trend-Line using "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 Trendline indicator, the indicator draws the end values of multiple Linear Regression trend lines. Any single point along the Linear Regression will be equivalent to the end value of a Regression Trendline, but the resulting trend line looks like the MA.
But unlike the Moving Average, this trading indicator does not show as much delay since it's fitting a line on to information points rather than averaging them.
The Linear Regression is a prediction of the tomorrow's price drawn today, one day before. When the market prices are steadily higher or steadily lower than the forecast price, then a fx trader can expect them to return quickly to more realistic fore-casted levels.
In other terms, this technical indicator shows where the prices "should" be trading based on a statistical basis & any dis-proportionate deviation from the regression line is likely to be short lived.
FX Analysis & Generating Signals
This indicator allows for price choice, adjusting number of periods & smoothing out of price data before applying the calculation and the choice of smoothing type.
This indicator looks like a MA but it has a bi-colour representation.
- Bullish Signal (Blue color) - A rising line (higher than its previous value one previous bar before) is displayed & shown in the uptrend blue colour, while
- Bearish Signal (Red colour) - a falling line (lesser than its previous value one previous bar before) is shown & displayed in the down-trend red colour.
Analysis in FX Trading
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