A technical indicator that attempts to follow the trend of the market but is plotted as a dynamic and but not straight like the linear regression line.
Overview
The Linear Regression Indicator plots the trend of a market instrument’s price over a specified length of time. The trend is determined by calculating a Linear Regression Trend Line using the “least squares fit” method, which helps to minimum distance between the data points and a Linear Regression Trend Line.
The Linear Regression indicator is not “linear” like the regression line. Instead it plots the ending values of multiple Linear Regression trend lines. Any point along the Linear Regression Indicator will reflect the ending value of a Linear Regression Trend line, resulting in a Moving Average type of plot on the chart.
Compared to a Moving Average, the Linear Regression Indicator is less delayed in its turns. The Linear Regression Indicator can be interpreted as a forecast of the tomorrow’s price plotted today. Trading methods using the Linear Regression Indicator assumes that the market should trade near the statistical mean. Therefore price action consistently above or below the Liner Regression Indicator can be anticipated to trade back towards the indicator.
The Line Regression Indicator on a daily USD/ZAR chart 4/18/2011
Source: VT Trader
