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Linear Regression Channels Indicator
Linear Regression Channels Indicator is a custom built indicator for Metatrader 4 that graphically displays the linear regression line and a variable number of outside regression channels. The indicator updates automatically on your chart with the latest candle or bar to conform to the latest real-time price data.
What is Linear Regression:
“A statistical technique in which one takes a set of data points and plots them on a line. Linear regression is used to determine trends in economic data. “ by thefreedictionary.com
[](http://forexninja.net/wp-content/uploads/2012/05/Linear-Regression-PublicDomain.png)
In simple terms, classical linear regression analysis attempts to best fit a line between the data points (or prices) that occur over a specified time period.
From a trading perspective, plotting a linear regression line on your chart can show you the recent trends of forex prices.
The directional slope of the regression line as an upward sloping line would indicate a bullish trend or a downwards sloping line would signal a bearish trend over a specified timeframe.
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Linear Regression Channels:
The Linear Regression Channels, in addition to the regression line, can give you more information by analyzing how far price has moved away from the Regression line.
[](http://forexninja.net/wp-content/uploads/2012/05/linear-regression-channels-3channels.gif)
The channels can be used as a volatility measurement as well as an overbought / oversold indicator.
When prices sharply distance themselves (measured in standard deviations) from the regression line, it can signal an extreme price position. Prices may be setting up for a reversal or the previous trend is not holding and changing.
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Equilibrium Price Forecasting & Mean Reversion:
Quantitative traders and analysts have been known to utilize linear regression in their trading due to the mathematical nature of this indicator.
In addition to identifying a simple trend direction of the linear regression line on your chart, more advanced forecasting strategies can also be worthwhile to experiment with.
Equilibrium Price: The far right of the regression line can indicate the current “equilibrium” price point or fair value price that best fits the data over your specified time horizon. Traders have been known to use this equilibrium price as a forecast target to where prices may be headed or as part of a mean reversion strategy.
Mean Reversion: You may have heard the popular saying that something is “reverting to the mean” and it is a way of saying that something will come back to its normal path or with regard to prices, to where it has traded before. When prices move to an extreme either above or below the linear regression line (the mean), a reversion back to the mean may be in store. Many trading strategies have been based on this idea.
See this article for more information on [Linear Regression Mean Reversion Trading at Investopedia](http://www.investopedia.com/articles/trading/09/linear-regression-time-price.asp#axzz1vtRXn4Io)
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Indicator Properties Options & Variables:
Experiment with these settings when applied to your Metatrader Chart:
[](http://forexninja.net/wp-content/uploads/2012/05/PropertiesWindow.gif)
Options:
# of bars or data points to measure
shift your lines into the past or future
# of channels to be applied to your charts
# of Standard Deviations to separate each channel
color and styling of your lines
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Screenshots:
[](http://forexninja.net/wp-content/uploads/2012/05/linear-regression-line-screenshot1.gif)
[](http://forexninja.net/wp-content/uploads/2012/05/3-std-screenshot.gif)
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Purchase this Indicator for
$49.95 USD
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Works with Metatrader 4
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Online Linear Regression Resources:Â [Online Trading Concepts Linear Regression Strategies](http://www.onlinetradingconcepts.com/TechnicalAnalysis/LinRegChannel.html) – [The Linear Regression Of Time and Price – Investopedia](http://www.investopedia.com/articles/trading/09/linear-regression-time-price.asp#axzz1vtRXn4Io) – [Reverting To The Mean](http://www.forbes.com/2007/04/19/lehman-unh-trading-pf-edu-in_lc_0419chartroom_inl.html?partner=links) – [The Many Facets of Linear Regression](http://epchan.blogspot.com/2011/04/many-facets-of-linear-regression.html) – [Yale Course Definition](http://www.stat.yale.edu/Courses/1997-98/101/linreg.htm)
Metatrader4 Indicators
Use these custom indicator with any broker that provides the MetaTrader 4 platform. MetaTrader 4 is a widely used forex trading platform that allows traders to add custom features to enhance their trading & analysis.
Linear Regression Channels Indicator
This Linear Regression Line Indicator works with Metatrader 4 and is a statistical calculation indicator that can be used to forecast price movements. Plot parallel channels to the Linear Regression line that are separated by variable standard deviations.
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