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Linear Regression Forecast


Linear Regression Forecast

Linear regression is a statistical tool used to predict the future from past data.
This indicator calculates a linear regression trend line using the "least squared fit" method.

Why should I use it?

You can use the Linear Regression Forecast indicator just like you use a Simple Moving Average (SMA). However, the linear regression has a particular advantage, while a moving average is what we call a lagging indicator, the Linear Regression is fitting a best line to the market's movement, and therefore it is more predictive and less legging in its nature.

How does it look like?

Similar to the SMA, the Linear Regression Forecast indicator is a one line indicator, which is drawn on top of the market price.

How does it work?

When setting up the Linear Regression Forecast, you will have to select the number of periods for the indicator to calculate (again just like SMA), then the platform will draw the Linear Regression Forecast line on you chart.
The value of the line for each and every time period is the prediction this indicator makes (the Forecast) for that particular time period.
For instance, if you are looking at an hourly chart of EURUSD and it is now exactly 10:00, the current price of the market is 1.2750 and the Linear Regression Forecast value is 1.2790, it means that the Linear Regression Forecasted that the price for this hour would be 1.2790, which is higher than the actual price, signaling a buy.
Use the Linear Regression Forecast just as you would use a simple moving average or an exponential moving average.

Example


In this Example we opened a daily chart of EUR/USD with the Linear Regression Forecast indicator. Notice how the line keeps in tune with the price movement, as it tries to forecast the price for the next bar.


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