Linear Regression indicator

Linear Regression

Linear regression is a technical indicator to measure a trend based on statistical methods. The resulting parabolic shape similar to the Moving Average that the methods used are similar.  



Seen in the example image above, the graph AUD / USD 1H time frame. Where has been added also an indicator of Linear Regresion. Looks indeed similar to the MA. We can take the new position when seen Linear Regresion through the price. The method used in linear regression are as follows:

1. The movement of the indicator shows the rising trend (bullish) or down (bearish).
2. If through the price it will form a new trend.

If a price trend up or down, the angle of the linear regression will also show a movement of the base up or down. At the moment the price has to go up or down we can expect higher yields from this indicator. Linear regression is a model of the relationship between two variables by linear equations. For example, the equation of weight and height of a man.

Thus the function is similar to the Moving Average, but calculations using statistical methods. Each point is illustrated linear regression indicator will leave a trail which is described as a whole in the form of curves. This indicator is useful for:

1. Predicting the future price movements based on current prices.
2. Determine price trends. It's easy to apply where when Linear Regression through the price from below and above there will be a bullish pattern (trend up).
3. As a determinant Support & Ressistence. The points I mentioned as a New Trend in the previous chart earlier is described as Suppot point (the lower limit of the price movement) and also Ressisten (upper limit of the price movement). In Forex Trading we can measure the correlation between price (Y) and the time (X).

The advantages and disadvantages of the indicator is as follows:

Pros: This indicator is very easy to use in measuring a price trend. With the help of a line MA 1 then we will be able to conclude that if the Linear Regression line through the price it will form a new trend.

Disadvantages:   The nature of this indicator is lagging or late: if this indicator is used alone without any help from other indicators, then we do not know when prices will stop rising or falling. We recommend that you add indicators such as RSI or stochastic oscillators to anticipate this. Hopefully the above explanation can help you in forex trading. Good luck in reaching Profit.