The Least Squares Linear Regression line indicates the dominant market trend relative to time. In simple terms, is the market trending lower or higher with respect to time? It can inform you when the market is diverging from an established trend, but only when prices fluctuate uniformly around the trendline and within a narrow range. The better the fit of the equation to the data, the more reliable the linear trend. Once the calculations are completed, FutureSource draws the trendline on the screen.
Do not rely on this study when prices deviate widely about the trendline. The fit of the trend to the data is most likely not very reliable. If the price chart flows uniformly about the regression line, the market should have a tendency to continue in the direction of the statistically fit trendline. Any large deviation from the regression line implies a change in the dominant market trend.
The least squares methodology can be found in most books on basic statistics. It is a rather intense calculation process.
Properties
Number of Bars: The number of bars on which to base the regression. If the chart displays daily data, then number of bars denotes days; in weekly charts, the number of bars will stand for weeks, and so on. The application uses a default of 500.
Aspect: The Symbol field on which the study will be calculated. Field is set to “Default”, which, when viewing a chart for a specific symbol, is the same as “Close”.
Content Source: FutureSource
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