The Linear Regression Indicator (LRI) displays the trend of a security's price over time. That trend is determined by calculating a Linear Regression Trendline using the least squares method. This ensures the minimum distance between the data points and a Linear Regression Trendline.
Unlike the straight Linear Regression Trendline, the Linear Regression indicator plots the ending values of multiple Linear Regression trendlines. Any point along the Linear Regression Indicator will be equal to the ending value of a Linear Regression Trendline, but the result looks more like a Moving Average.
Unlike a Moving Average, the Linear Regression Indicator does not exhibit as much delay. As the Linear Regression Indicator is fitting a line to the data points rather than simply averaging them, the Linear Regression line becomes more responsive to changes in prices. The Linear Regression Indicator can be thought of as a forecast of the tomorrow's price plotted today.
When prices are persistently higher or lower than the forecasted price, expect them to quickly return to more realistic levels. The Linear Regression Indicator shows where prices should be trading on a statistical basis and any excessive deviation from the regression line is likely to be short-lived.
Calculation:
avg(Price)= Average price value
avg(bar)= Average period
Inputs:
Price Field = Close
Indicates Open, High, Low or Closing price.
Period = 14
Indicates time period(the number of days for daily analysis, the number of weeks for weekly analysis, etc.).
Indicator Type: Trend