The Linear Regression Channel is a three-line technical indicator that uses a standard deviation filter to identify support and resistance levels consistent with the trend of the analyzed timeframe. It outlines the upper bound, lower bound, and midpoint of a trend or price movement.
To use the indicator, go to Indicators in the View menu:
Search for the indicator and click Insert:
The indicator consists of a median line with two parallel lines placed above and below it at an equal distance. These outer lines function as support and resistance
The center line in this channel is the Linear Regression Line (or Mean Line), while the upper and lower lines represent the Upper and Lower Standard Deviations from the mean, as defined in the tool's settings. The calculation source can be set to close, open, high, or low. The channel height is based on the price deviation from the median line.
To configure the indicator parameters, right-click and select Linear Regression Channel Properties:
The correlation of this linear relationship is displayed using the Pearson correlation coefficient, or Pearson's R.
Pearson's r measures both the strength and direction of the correlation, with values ranging between -1 and 1. Consequently, as Pearson's r moves further away from zero, the strength of the linear relationship between price and time increases.
Was this content helpful?
Please rate us down below.