Linear Regression Technical Analysis and Linear Regression Forex Trading Signals
Another name for a regression line is a line of the best fit/best fit line. This indicator plots the trend of the currency 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 indicator, the indicator plots 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 Trend-line, but the resulting trend line looks like the Moving Average.
But unlike the Moving Average, this indicator does not show as much delay since it is fitting a line onto data points rather than averaging them.
The Linear Regression is a prediction of the tomorrow's price plotted today, one day before. When the prices are steadily higher or lower than the forecast price, then a Forex trader can expect them to quickly return to more realistic fore-casted levels.
In other terms, this indicator shows 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.
Technical Analysis and Generating Signals
This indicator allows for price selection, adjusting number of periods and smoothing of price data before applying the calculation and the selection of smoothing type.
This indicator looks like a moving average 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 trend blue color, while
- Bearish Signal (Red color) - a declining line (lower than its previous value 1 previous bar before) is displayed in the down trend red color.