Linear Regression Channels (LRC)

A Linear Regression Channel is a indicator used to determine the trend a security is developing and the most probable price range that will take place within that trend. The regression channel is created using a price history and consists of an upper line, a middle line, and a lower line. The upper channel line is formulated by connecting a series of current high price points in a straight line, the middle line by connecting intermediate highs and lows, and the lower channel line by connecting a series of low price points.

The distance between the channel lines to the regression line is the greatest distance that any one closing price is from the regression line. The Regression Channels then contain the price movement, with the bottom channel line providing support and the top channel line providing resistance. Prices may extend outside of the channel for a short period of time and usually if prices remain outside the channel for a long period of time, a reversal in trend may be imminent.

The channel basically supplies a picture of the overall trend of a stock and indicates whether the security is in an uptrend, downtrend, or just remaining static.

Normal Calculation

Typical Charting Program Formula:

A := LR(C,N);

Dist :=C-A;

M := Max(MaxValue(Dist),ABS(MinValue(Dist)))*P/100;

Upper : A +M;

Lower : A – M;

A;

@SetName(A,”);

@SetTextVisible(Upper,false);

@SetTextVisible(Lower,false);

Formula Parameters:

Linear Regression Channels Indicator Chart: