Regression Channel Linear Regression Line:
The line that fits all the data points, in stocks is considered the line where the majority of the price action is distributed.
" R Square" value
It deviates in the range of 0 to 1, the closer the value to 1, the better it is
It defines the Best fit of data.
Upper Channel Line: A line that runs parallel to the Linear Regression Line and is usually one or two standard deviations above the Linear Regression Line.
Lower Channel Line: This line runs parallel to the Linear Regression Line and is usually one or two standard deviations below the Linear Regression Line.
The upper and lower channel lines contain between themselves either 68% of all prices (if 1 standard deviation is used) or 95% of all prices (if 2 standard deviations are used). When prices break outside of the channels, either: Buy or sell opportunities are present. Or the prior trend could be ending.
Linear Regression Channel Possible Buy Signal
When the price falls below the lower channel line, and a trader expects a continuation of the trend, then a trader might consider it as a buy signal.
Linear Regression Channel Possible Sell Signal
Selling opportunity lying might occur when prices break above the upper channel line, but a continuation of the trend is expected by the trader.
Trend Reversals
When a price closes outside of the Linear Regression Channel for periods, this is often interpreted as an early signal that the past price trend may be breaking and a significant reversal might be near.
