Linear Regression and Linear Regression Slope

Forgot about all the complicated indicators, and think basics for a minute. Hasn’t everyone been taught that prices are mean-reverting? Well, then the #1 basic indicator is a Linear (first degree) Regression. This sloping line will tell you the trend, the strength of the trend, and you can see how far the price has been moving either side of the line, and with strong certainty where it will Regress to. Mean reverting. Back to the line.

First please add the Linear Regression study. It can generate a regression line price metrics like OPEN, CLOSE, OHLC, VOLUME, VOLATILITY etc.

Then add a study that returns a mathematical value (needs a smoothing function, 14 is a good length) that is the first derivative (the rate of change of the slope) of the linear regression line at any time. The curve gives you all you need to buy at the dips and sell at the tops. The steeper the curve, the stronger the trend. If the curve is going up, so is the price, or it soon will be. Basic math. The linear regression and the first derivative thereof which is the rate of change of the OPEN, CLOSE, OHLC, VOLUME, etc.

Finally, use the Linear Regression Slope to make indicators for crossing the zero-line (trend reversal strongest) or the High and Low pivots that are at the very beginning and/end of the trend.

See ThinkorSwim for complete examples. Traders, try these out and let’s get some votes. These essential study/indicators get to the basic numbers that make issues go up and down.