Linear Regression Forecast

This is a discussion on Linear Regression Forecast within the Trading Systems forums, part of the Methods category; Hello Does anyone use Linear Regression with price action to catch longer term price swings. I got the idea from ...

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Old Oct 21, 2004, 12:28pm   #1
Joined Sep 2003
Linear Regression Forecast

Hello

Does anyone use Linear Regression with price action to catch longer term price swings.

I got the idea from www.linnsoft.com/charts. I've been looking at a revised system on the DAX 10min which has a 6 point stop and 5 point trail stop with entry on a price break. Glancing over the last few months it appears to work pretty well, catching big price moves. Not sure in the long term though as it would need further testing!

Anyone using something similar?

C
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Old Oct 21, 2004, 1:01pm   #2
Joined Jun 2004
Dynamic Linear Regression

Hello

I have spent over eight years developing a trading system applicable to all markets which uses Linear Regression. It is also applicable to all time frames.

Because the system measures changes in the regression characteristics from one bar to the next I use the term Dynamic Linear Regression.

My goal is to make a significant contribution to financial analysis and system trading development. Time will tell..........................
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Old Oct 21, 2004, 1:36pm   #3
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cd173 started this thread Hi Pippppin

From, what I understand LRF doesn't have the 'lag' that a ma crossover does?
If you wouldn't mind, I'd be interested in hearing about your methods, but understand if you want to keep them under wraps!

Cheers
C
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Old Oct 21, 2004, 1:46pm   #4
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MA versus DLR

Hello C

It is good to know that other people recognise LR as a potentially profitable trading tool.

Funny you should mention the "lag" of MA. I began my research in 1996, and I spent a couple of years doing some pretty intensive research re: moving averages. My eventual conclusion was that you are always "behind" the market ie reacting to what it has done, rather than what it is going to do. Which is not to say, of course, that it cannot be used as a successful trading tool.

It was March 1999 before I had an insight as to how LR could be used to quantify a specific recurring situation in market behaviour. Nothing since then has led me to deviate.

I am a little "coy" about revealing my findings, at least at the moment. But that may change, and if it does I wil be happy to give you some more information.

Meanwhile, good luck with your trading and system development
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Old Oct 21, 2004, 4:12pm   #5
 
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I have used MA envelopes in the past and I still use them on daily charts to try and find good times to trade when the indicies are oversold or overbought. My charts are in Excel and it took me a long time to work out how to make them. I agree that the lag is a problem and I want to use Linear Regression. My brain takes a long time to process these mathematical equations and work out how to plug them in to excel but I will give it a go.

Here are a couple of links that I found interesting:-

http://tinyurl.com/59t7x

There is a free 350 page pdf book here. It is about biological data but I presume the methods can be applied to stock market data:-

http://www.curvefit.com/
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Old Oct 21, 2004, 4:48pm   #6
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cd173 started this thread Bigbusiness

Thanks for the links. Do you intend to use LRF? If you follow the link it gives a detailed breakdown for the ESmini with backtest results. From what I gather, LRF works more effectively over longer time frames.
Suppose it's down to personal preference!
I'll probably do some testing over the weekend and post the results

Cheers
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Old Oct 21, 2004, 5:49pm   #7
 
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Any reason for picking linear rather than non linear regression apart from the added complexity ?

Cheers

Stew
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Old Oct 21, 2004, 8:48pm   #8
 
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Don't know if I will use LFR. I just want to make some charts in excel and play around with them to see if there is anything I can use. I am too busy to do much at the moment, so it will have to wait.
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Old Oct 29, 2004, 4:02pm   #9
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cd173 started this thread Been playing around with LRF/price action and have found that a setting of SMA1 with regression period of 26 can produce some pretty reliable signals. Only tested it the last few months, but the results look promising. On choppy days it's awful, but on a 1min chart with a bit of range, such as the DAX, seems ok.
Needs more testing me thinks.

Any thoughts anyone?

C
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Old Aug 3, 2005, 11:19pm   #10
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LRC - the best kept secret

I've been researching and presently using linear regression channels with some success.

A common mistake traders make, IMO, is to confuse linear regression channels (LRC) with fixed zones of support and resistance. They're not! They are simply dynamic, moving lines which create a 3 dimensional view of price deviation. Really not different, in concept, from Bollinger Bands, only that LRC's are straight lines and remain straight, creating a more cogent view of price movement.

I'm combining both LRC's, technical analysis and fundamental analysis to help me accurately plot correct deviations and expected probabilites of price movement back to the mean. I use Stock Fetcher to find stocks trading at channel lows or highs. So far, results have been impressive but I'm not finding a lot of good candidates (don't know if that's due to current market conditions, or is normal); nor am I making large profits (though my account at this time is less than 5k). We'll see.

By from the US of A.

Ron
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Old Aug 4, 2005, 9:40am   #11
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it will be a beautiful irony...............markets, often viewed as random events, contain strong linear characteristics, and DLR could yet prove to be the best method for predicting price movements
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Old Aug 4, 2005, 11:02am   #12
 
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Pippp - as Mac the Knife asked above, have you done much work on non-linear regression, or any non-linear methods come to that? If not, is there a particular reason?
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Old Aug 4, 2005, 11:14am   #13
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my research project has lasted for about 6 and a half years, and has concentrated exclusively on applying linear regression, rather than non-linear regression. Given the strong linear characteristics of recurring chart patterns, I have not felt any need to apply non-linear regression.
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Old Aug 4, 2005, 11:38am   #14
 
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Thanks. I hope it's all going well, and maybe see the results on here one day.
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Old Aug 4, 2005, 11:57am   #15
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thanks blackcab.................i will keep you posted
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