✔️ Information reviewed and updated in December 2023 by Eduardo López
Indicators such as linear regression are trading tools used to determine price rises and falls, and to find points where there is a high probability that the price will change direction. These points are usually determined using divergences between price movement and momentum.
These indicators range from 0 to 100, and show whether market conditions are overbought or oversold. In other words, they calculate whether it is in condition for sale or purchase.
In this article we will explain in detail what the linear regression indicator is. One of the most used tools by trading operators that you should undoubtedly know about, especially if you are interested in the world of investments and cryptocurrencies. So read on to learn more:
➡Definition of the linear regression indicator
A linear regression is a statistical tool that is used to predict the future price from the last price. It is used as an indicator of excessive price extension, up and down.
This indicator is the representation of buyers and sellers that operate outside the equilibrium price.. The equilibrium price can be a comparison of this linear regression line.
➡ What is linear regression for?
Traders use this indicator to open a long position when the price is below the line., which can be determined as a good time to buy.
When the price is above the linear regression line, it can be determined as a good time to sell fast. Entry and exit signals must be evaluated by trading operators in relation to the price action and volume of the chart to be analyzed.
➡How is it obtained?
The linear regression line is a line that fits prices between a starting point and an end point in a certain period of time. This line should be viewed as an "equilibrium price" of prices.
A "best fit" means that a line is constructed where there is less space between the price points and the linear regression line. A move below or above this line indicates more passionate buyers (above) or sellers (below).
A regression channel consists of a median line with 2 parallel lines, one above and one below, found at the same distance. These can be thought of as support and resistance.
The median line is obtained based on the regression of the closing prices, but its source can also be set as open, high or low. The height of this channel is based on the deviation of the price from the median line. To find trading opportunities and cause bias, you can extrapolate the channel forward.
To indicate the linear regression oscillator, the following code is taken into account with your computer:
REM Linear Regression
a = Line Regression  (close)
REM closing price
b = close
REM Linear Regression Oscillator
c = ba