Usage of the Linear Regression Indicator

The Linear Regression (LR) indicator is calculated as a trend line, using the least squares method, which minimizes the difference between the price and the Linear Regression trend line in a certain period of time. However, the indicator does not plot one straight trend line, but a number of LR trend lines.

The LR resembles the Moving Average, however it has some advantages. Unlike the MA, the LR does not just average the price points, it adapts them to the trend. Therefore it is more responsive to price movements, and can predict the price behavior in a couple future periods. The forecast is based on the present price and past price trends.

In a strategy, the simplest way to use the Linear Regression indicator is to open buy positions, when the LR stops decreasing and starts increasing, and to open sell positions in the opposite situation.