6 min read

There are many indicators on the IQ Option platform and we often talk about the most popular ones because they are generally easier to understand and widely used by traders. However, there are many indicators that are a little more advanced and adapted to certain needs of certain traders. Today we will talk about one of these indicators, called "the linear regression curve". While it suggests a slightly more complicated structure, it's not hard to figure out, so let's break it down step by step.

How it works?

The linear regression curve is a statistical tool, meaning it uses past performance to help predict future price movements. It is an oscillator that smooths the data on the chart with a moving average of the chosen period and forms regression lines ending at each bar, using the specified regression period.

The indicator measures the direction as well as the strength of the trend. It is made up of the indicator line that hovers around the value 0. When there is an uptrend, the curve is generally positive and passes above zero. When the asset is in a downtrend, the oscillator signals it by tilting below the baseline. Periods of strong trend can also be spotted in the indicator's rapid movements.

However, it is important to note in such a case that past performance cannot always be an indicator of future performance.

How to use it in trading?

Traders can use the linear regression curve indicator to define the direction of the trend, as well as its strength.

Linear regression line reflects sharp drop in Apple stock price

In the example above, we show how the sharp drop in prices is reflected in the movement of the indicator. At the time of the decline, the indicator goes below -20, later the trend remains negative, but less strong, and the indicator goes back above -20 but below 0.

Although the example shows a longer period (candlesticks are set at 8 o'clock), this indicator can be used effectively for shorter periods as well. As this is a lagging indicator, it is best to combine it with leading indicators such as moving averages for possibly more accurate graphical analysis. Traders can also use indicators such as the Stochastic Oscillator to find entry points for trades.

These three indicators are used to confirm a continued downtrend in EUR / USD in the example below.

Linear regression curve, moving averages and stochastic confirm a downward trend in EUR / USD

It is important to note, however, that past performance is not an indicator of future price development and that there is never a guarantee of 100% accuracy; therefore, the trader must remain vigilant and use risk management tools at the same time as the strategy.

How to set it up?

To set up the indicator, just find it in the Trend section of the indicators menu.

The linear regression curve indicator on the IQ Option platform

This tool has its default settings, but more advanced traders can change the indicator period. Normally, the longer the period used for the indicator, the more meaningful the measurement. It all depends on the strategy adopted by the trader.

Have you ever tried to trade with this indicator? Let us know your thoughts in the comments below.

Trade now

Source: IQOption blog (blog.iqoption.com) 2020-09-21 13:39:38
Article has been translated for informational and promotional purposes. Translations may not be correct and may contain errors we are not responsible for. Please note this article has been translated by using artificial intelligence. If you are having problems to understand article please refer to original article from IQOption blog.