Linear Regression Analysis and Linear Regression Trading Signals
Another term for a regression line is a line of the best fit/best fit line. This technical indicator draws 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 the "least square fit" method. This technique helps to minimize distance between 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 equal to the end value of a Regression Trendline, but the resulting trend line looks like the MA.
But unlike the Moving Average, this indicator does not show as much delay since it's fitting a line on to info points rather than averaging them.
The Linear Regression is a prediction of the tomorrow's price drawn today, one day before. When market prices are steadily higher or steadily lower than the forecast price, then a forex trader can expect them to return quickly to more realistic fore-casted levels.
In other terms, this technical technical indicator shows where the prices "should" be trading based on a statistical basis and any dis-proportionate deviation from the regression line is likely to be short lived.
Forex Analysis and Generating Signals
This indicator allows for price choice, adjusting the No. of periods and smoothing out of price data before applying the calculation and the choice of smoothing type.
This indicator looks like a MA(Moving Average) 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 downtrend red colour.
Analysis in FX Trading
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