Linear Regression MA, Practical application?

[sgsaxton]

I've been tinkering with this thing since January and sometimes found it useful for entries. Does anyone use it?
What's its real purpose?

Thanks,

Steve

 

[Rhody Trader]

The major drawback of linear regression is that the markets are non-linear. Regressions have never been very good at predicting price action, so a Linear Regression MA is just a plot of a series of poor forecasts.

Actually, the same could be said of any standard moving average.

 

[Anonymous]

The practical application could be to sell the systems on eBay.

 

[kevinmcm]

The major drawback of linear regression is that the markets are non-linear. .

The markets dont have to be linear, thats what the LR analysis is trying to do for you. Take random variables and work out a linear equation to explain the relationship.

I did spend some time on this a few years back, think I was using UK banks as an example and plotting rise and fall against FTSE moves. If I can find the data I will post it up, might save someone a bit of time.

Kevin.

 

[TWI]

The angle of the linear regression can be a reasonably good overbought/oversold indicator.

 

[Rhody Trader]

The angle of the linear regression can be a reasonably good overbought/oversold indicator.

I pressume you mean the steeper the line, the more overbought/oversold. A reversion to a near zero slope line, so to speak.

 

[Pippppin]

There are recurring chart patterns/formations which exhibit strongly linear characteristics, so linear regression is, I believe, as good a mathematical technique as any for analysing market behaviour. I have been researching this area for over six years.

I am not familiar with a linear regression ma, but I would suggest it is certainly worth studying

 

[TWI]

I pressume you mean the steeper the line, the more overbought/oversold. A reversion to a near zero slope line, so to speak.

Yes. It reverts to 0 and has -90 to 90 as a range.

 

[sgsaxton]

thanks for your input all.
Does anyone use it?
It amazes me how little information I've been able to find out about it beyond the theoretical. No methodologies what-so-ever. Yet its included in almost all software packages.

 

[GruntnoWay]

I have just seen this thread. I think perhaps the answers have missed the point or have I. Sgsaxton was talking about Linear Regression MA - I presume moving average. I have tried this. My software does it. i plots the end point of the Linear regression line. Its a pretty smart moving average specially if you use two together.

If thats not what you mean, then apologies. I will go and hide under a bush.

 

[sgsaxton]

I have just seen this thread. I think perhaps the answers have missed the point or have I. Sgsaxton was talking about Linear Regression MA - I presume moving average. I have tried this. My software does it. i plots the end point of the Linear regression line. Its a pretty smart moving average specially if you use two together.

If thats not what you mean, then apologies. I will go and hide under a bush.

Thanks for your reply. You are quite right I did mean the Linear regression Moving Average.
I've used it to determine strength or weakness. i.e if the price rallies and then falls back below the Lin Reg Ma one would look to put on a short position. How ever it has a tendency to overhshoot and one needs to be careful. If you don't mind my asking, what ways have you used it?

 

[GruntnoWay]

I use it as a crossover signal as I would with any other moving average combination. I usually run it through the optimiser to find the best periods.

 

[ronfalcone]

Precision Trader

I use it as a crossover signal as I would with any other moving average combination. I usually run it through the optimiser to find the best periods.

Very little on linear regression on the web. However, one of the more vocal proponents of Linear Regression as a trading tool is Mel Raiman, who does seminars several times a year and teaches a system he calls "Precision Trading." He uses linear regression channels set as 23 periods and 1 standard deviation along with 4 period EMA. Charts are viewed in different time frames (fractal set ups) for entry determination.

i haven't taken his course and I'm not a spokesman. I would suggest doing a Google search for those interested. Key words: "Mel Raiman AND Precision Trading."

Ron