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    Linear Regression Channel
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      Linear Regression Channel

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        Article Summary

        DXcharts powers DXtrade, DXfina, and FinCharts.
        Check our website to find more information about DXcharts library.

        Linear Regression Channel is an indicator used to analyze the upper and lower limits of an existing trend. The channel consists of three lines: upper channel and lower channel lines that mark the top and bottom of the trend, and linear regression line, which is used to determine the trend direction. The linear regression line is based on the linear regression algorithm which makes the line more responsive to the prices than the classic moving averages. The prices above the linear regression line make up the bearish trend, and the ones below the linear regression line indicate the bullish trend.

        The formula uses the sum of least squares method to find a straight line that best fits data for the selected period. The end point of the line is plotted and the process repeated on each succeeding day.

        y = a + bx
        b = (nΣxy - ΣxΣy) / ( nΣx2 - (Σx)2 ))
        a = (Σy - bΣx) / n

        where:
        y – the data price source
        x – the number of bars
        a – the constant (the value when x equals zero)
        b – the slope of the line
        n – the number of data points selected

        Linear Regression ChannelLinear Regression Channel

        INPUTS

        InputDescription
        LengthThe number of bars used during the calculation 
        Price
        The following data sources are available for calculation of the channel lines:
        • Open. The Open Price of every bar for the specified period.
        • High. The High Price of every bar for the specified period. 
        • Low. The Low Price of every bar for the specified period.
        • Close. The Close Price of every bar for the specified period. 
        • Median. The Median Price of every bar for the specified period - (High + Low) / 2.
        • Typical. The sum of High, Low, and Close prices divided by 3 for the specified period - (High + Low + Close) / 3.
        • OHLC average. The arithmetical mean of High, Low, Open, and Close prices for the specified period - (Open + High + Low + Close) / 4.
        • Volume. The Close Price of every bar + average volume of an asset for the specified period.
        InputDescription
        WidthThe width of the channel in px

        PLOTS

        The plot renders the data you are working with on the chart. You can show/hide a plot by clicking the corresponding item in the settings. Every plot has a set of basic settings that you can change: color, weight, and type.

        PlotDescription
        LowerThe lower channel plot
        LinRegThe linear regression plot
        UpperThe upper channel plot
        Color

        Click the color rectangle under the plot's name to open the palette. Use the slider at the bottom to set the opacity of the color.

        Palette

        To create a custom color:

        1. Clickto open the color picker
        2. By using the slider at the bottom, adjust the main color
        3. Then, set a shade for the main color on the palette

        The custom-created colors are added to your palette. To remove a custom color, drag it out of the palette.

        Weight
        Change the value (in px) to adjust the thickness of the plot.
        Type
        The following plot types are available:
        • Linear. The plot is displayed as a line.
        • Column. The plot is displayed as a histogram.
        • Difference. The plot is displayed as a line which represents the difference between High and Low prices of the bar.
        • Points. The plot is displayed as points.
        • Text above candle. The plot is displayed as the price labels above candles on the chart.
        • Text below candle. The plot is displayed as the price labels below candles on the chart.
        • Triangle above candle. The plot is displayed as triangles above candles on the chart.
        • Color candle. The candles on candle-type charts are highlighted with specified colors.

        OVERLAYING

        Check Overlaying to display the indicator on the chart. Otherwise, the indicator is shown in a study pane down below.

        Note: To reset the settings, click Restore to Default next to the SETTINGS: INDICATOR'S TITLE
        What's Next