Linear Reg Curve

Definition

Linear regression is the analysis of two separate variables to define a single relationship and is a useful measure for technical and quantitative analysis in financial markets. It is used to predict future market values relative to their past values, and is normally plotted on a price chart as a straight line like a trendline.

The Linear Regression Curve indicator, however, does not plot a straight line. Instead, it curves through price activity. The indicator curve is a result of plotting a line through each end point of invisible linear regression lines. Each invisible trendline plots the minimal distance between closing prices, using the "least squares" method, over the number of bars defined in the Length input.

The indicator is used to determine where a market's price might be in the near future using current and past price history. When the prices are trending up, linear regression attempts to logically determine the upward bias of the price thatmay be relative to the current price. If prices are trending down, the indicator will attempt to determine the downward bias of the price. Some analysts believe that when prices rise above or fall below the linear regression line, they are overextended and will begin to move back towards the line. Thus, the line is used to monitor when a price move may change direction.

When applied to a chart, this indicator contains one plot displayed in the same subchart as the main data series.

Default Inputs

Price sets the price used for calculation, close by default.

Length sets the number of bars used for calculation, 9 by default.

Displace sets the number of bars to displace the plot, 0 by default.