Linear Regression Curve(LRC)

Linear regression curve is a trend following indicator.

Being a trend following indicator,Linear regression curve was created to enable traders know whether the market  is in an uptrend or a downtrend. Just like other trend following indicator,Linear regression curve is also based on support and resistance.

Linear regression curve is derived based on linear regression line equation .The equation will produce a straight line when fitted with various prices over a given period.

Therefore,the values of linear regression curve which follows the linear equation rule is calculated as follows;

y= a +bx


where as

y is price

x is period

  b is constant

 Since linear regression curve is a trend following indicator,it therefore follows that when the market is moving upwards, the linear regression curve will also be moving upwards while when the market is moving downwards the linear regression curve will also be trending downwards.
Based on support and resistance, when the price rises above the linear regression curve when the market and the linear regression curve are in an uptrend, a downward reversal movement will take place and the market and the linear regression curve will now be trending downwards thus signaling the trader to be trading in a downwards market.
On the other hand when the price falls below the linear regression curve when the market and the linear regression curve are in a downwards trend, an upward reversal movement  will take place and the market and the linear regression curve will now be trending upwards thus signaling the trader to be trading in an upward market. This is indicated as from the candle sticks chart below;



From the candle sticks chart above, there are 3 points, point A, B and C. Point A and B are the support and resistance point while point C which is a blue curve represents the linear regression curve.
At point A the market and the linear regression were initially moving downwards. The price in the market then falls below linear regression curve thus resulting to an upward reversal movement for both the market and the linear regression curve. This will signal the trader to close any sell position position and open a buy position.
On the other hand, at point B the market and the linear regression were initially moving upwards.The price in the market then rises above the linear regression curve thus resulting to a downward reversal movement for both the market and the linear regression curve.This will signal the trader to close any buy position and open a sell position.


Recommendation:If you are a day trader just use 1 min, 5 min, 15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want linear regression curve indicator to work well for you.

Comments

Post a Comment

Popular posts from this blog

MA cross

Image
MA cross is a trading indicator that is used to filter out noise from the price chart. MA cross can also be used by a trader to know the direction in which the price is moving. MA cross indicator is a trend indicator. MA cross is based on the crossover. Based on the crossover, MA cross has two moving average, the shorter term moving average and the longer term moving average. The shorter-term moving average is normally red in color and it represents the price while the longer term moving average is normally blue in color and it represents the moving average. Therefore, since MA cross is based on the crossover, it, therefore, follows that when the short term moving average crosses above the long-term moving average that will be an indication of an upward market movement thus the trader should be trading upwards. On the other hand, when the short term moving average crosses below the long-term moving average that will be an indication of a downward market thus the trader should b
Read more

coppock curve

Image
Coppock curve indicator was created by Edwin Sedge Coppock. The coppock curve is a momentum indicator that was mainly created to determine the buy entry in the stock market.Beside buy entry for stock sell signal can also be identify though not recommended. Coppock curve has 3 period,that is 10 period,14 period and 11 period. Coppock curve is an momentum oscillator and therefore has an oscillation at point 0.0000. Coppock curve is therefore calculated using the following formula which is based on the 3 periods; Coppock curve =( WMA of 10period) of (14 period ROC+11period ROC) Where as; WMA is Weight Moving Average; ROC is Rate Of Change indicator; Since coppock curve has an oscillation at point 0,it therefore follows that when the coppock curve falls below 0.000 that will be an indication that the market has become an oversold market thus the trader should close any sell position and enter a buy position.On the other hand though not recommendable ,when the coppock curv
Read more

Least Square Moving Average(LSMA)

Image
Least square moving average is also called linear regression moving average. Least square moving average is a trend following indicator. Just like in other moving average indicators, least square moving average is also used to indicate the direction of the market, that is whether the market is trending upwards or downwards. Least square moving average is based on bullish and bearish market as well as support and resistance. Least square moving average is therefore calculated using the following formula; LSMA= h*t+b  where as h={(n Σt i x i ) -  ( Σt i Σx i )}/{(n Σt i ) - ( Σt i Σt i )} b=1/n Σx i -h*1/n Σt i while t is the time and n is the period Since least square moving average is a trend following indicator and is based on bullish and bearish, it therefore follows that when the market is in an uptrend movement,the least square moving average will also be moving upwards while when the market is in a downward trend, the least square moving average will also be
Read more