✔️ Information reviewed and updated in December 2023 by Eduardo López
Trading is a new form of investment, which has become very popular over the years. Thanks to technological advances, there are indicators such as the slope of the linear regression that help us with our trading strategies.
Technical indicators are complements that you add to a trading chart, and that offer you additional help to obtain a certain type of advantage statistics in our operations. They are classified into different groups according to their purpose.
Traders usually use a combination of several indicators to open a trade. In this article we will talk about the pending indicator of linear regression. An indicator with a slightly more complex structure, but nothing difficult to understand.
✨Definition of the linear regression slope indicator
This indicator was developed by Tushar Chande and Stanley Kroll. Su purpose is to measure the variation of the expected closing prices per unit of time, per day or per session to determine if the current trend is bullish or bearish.
It has two advantages: the first is that it is calculated on closing prices instead of on average prices, and it does not suffer from delays when smoothing trends. The second is the possibility of incorporating price prediction measures, which allow some advance of prices.
✨ What is it for?
This indicator is often used in combination with the R squared to measure the strength of the trend, since the slope of the linear regression offers information on the direction of the prices to rise or fall and the R squared indicates whether this trend will continue or changes will be expected.
In this way, when the slope of the linear regression is positive (above zero value) or negative (below zero value), the moment to buy and sell will be indicated by the R squared signals at different periods. of time.
✨ How does the slope of the linear regression work?
This indicator uses past performance to help predict price fluctuations. That is, it is an oscillator that smooths the information on a chart with a moving average of a given period and creates regression lines at the end of each bar, using a given period.
Trading operators often use this indicator to define the direction of the trend, and its strength. On the platforms these indicators have more advanced settings, for example traders can change the period.
Typically, the longer the indicator period, the more important the measure. It all depends on the strategy that the operator wants to carry out.
✨ How is it interpreted?
If the indicator is above the zero level, then an uptrend is observed. On the contrary, if the indicator is below zero, then a downtrend is observed. The higher the indicator, the more important the trend will be.
For this reason, it is advisable to use the R squared indicator, in order to confirm the trend.
