Tools & IndicatorsLinear Regression
TrendIntermediate[ MP.IND.LINEAR_REGRESSION ]
Linear Regression
Linear Regression Channel
The Linear Regression Channel applies statistics to trading: it draws the linear regression line through prices (the 'line of best fit') and adds bands at one or two standard deviations.
Category
Trend
Difficulty
Intermediate
Markets
All
Timeframe
4H, Daily
Combinations
1 tools
Signals
4 setups
LIVE CHARTLinear Regression ACTIVE
[ HOW TO READ THE CHART ]
Green Zone: Price at upper band → Overbought relative to trend: target the central line
Red Zone: Price at lower band → Oversold relative to trend: target the central line
Main Line: Channel breakout → Regime change: redraw the channel
Confluence: Combine Linear Regression with RSI for maximum probability
[ WHAT TO WATCH ON THE CHART ]
Observe how Linear Regression behaves relative to key price points. Note moments when the indicator reaches extreme levels and how price reacts. Look for divergence patterns between the indicator and price movement.[ FORMULA ]
y = a + bx (least squares linear regression) Upper/lower band = ± N standard deviations from the regression line
What signals does Linear Regression generate?
Price at upper band → Overbought relative to trend: target the central line
Price at lower band → Oversold relative to trend: target the central line
Channel breakout → Regime change: redraw the channel
Positive and increasing slope of the line → Accelerating trend
What is Linear Regression and how does it work?
The Linear Regression Channel applies statistics to trading: it draws the linear regression line through prices (the 'line of best fit') and adds bands at one or two standard deviations. The central line represents the statistical 'fair value' of price: where price should be based on its historical trajectory. The upper and lower bands show statistically significant deviations.
How do you use Linear Regression in trading?
The central line is the natural mean reversion target. When price is at the upper band = statistically overbought relative to the trend. At the lower band = statistically oversold. Used to: identify trend direction, find mean reversion zones, place stops and targets in a statistically sound way.
What are the strengths of Linear Regression?
Statistically sound: not subjective
Shows the 'true' trend direction
Excellent for mean reversion trading
What are the limitations of Linear Regression?
Adapts to the past: limited predictive value
Subjective in period choice
Breakouts invalidate the channel
[ RELATED INDICATORS ]
[ RELATED CONTENT ]
Glossary:Breakout
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