# Linear Regression Indicator

The Linear Regression Indicator is used for trend identification and trend following in a similar fashion to moving averages. The indicator should not be confused with Linear Regression Lines — which are straight lines fitted to a series of data points. The Linear Regression Indicator plots the end points of a whole series of linear regression lines drawn on consecutive days. The advantage of the Linear Regression Indicator over a normal moving average is that it has less lag than the moving average, responding quicker to changes in direction. The downside is that it is more prone to whipsaws.

## Linear Regression Trading Signals

The Linear Regression Indicator is only suitable for trading strong trends. Signals are taken in a similar fashion to moving averages. Use the direction of the Linear Regression Indicator to enter and exit trades — with a longer term indicator as a filter.

**Go long if the Linear Regression Indicator turns up — or exit a short trade.****Go short (or exit a long trade) if the Linear Regression Indicator turns down.**

A variation on the above is to enter trades when price crosses the Linear Regression Indicator, but still exit when the Linear Regression Indicator turns down.

### Example

Goldman Sachs is displayed with 100-day Linear Regression Indicator and 300-day Linear Regression Indicator employed as a trend filter.

Mouse over chart captions to display trading signals.

- Go long [L] when price crosses above the 100-day Linear Regression Indicator while the 300-day is rising
- Exit [X] when the 100-day Linear Regression Indicator turns down
- Go long again at [L] when price crosses above the 100-day Linear Regression Indicator
- Exit [X] when the 100-day Linear Regression Indicator turns down
- Go long [L] when price crosses above 100-day Linear Regression
- Exit [X] when the 100-day indicator turns down
- Go long [L] when the 300-day Linear Regression Indicator turns up after price crossed above the 100-day Indicator
- Exit [X] when the 300-day Linear Regression Indicator turns down. Bearish divergence on the indicator warns of a major trend reversal.

### Setup

Setup for the Linear Regression Indicator is simple. The default time period is 63 days. This can be varied between 14 days and 300 days depending on the wave-length of the trend you are tracking.

See Indicator Panel for directions on how to set up an indicator.

## Linear Regression Indicator Formula

The formula uses the sum of least squares method to find a straight line that best fits data for the selected period. The end point of the line is plotted and the process repeated on each succeeding day.