Trend 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 Indicator 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.

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