Channels are useful measure for technical and quantitative analysis in financial markets that help identifying trends and trend direction. The use of standard deviation gives traders ideas as to when prices are becoming overbought or oversold relative to the long term trend
The basis of a channel
Linear Regression Line – is a line drawn according to the least-squares statistical technique which produces a best-fit line that cuts through the middle of price action, a line that best fits all the data points of interest. The resulting fitted model can be used to summarize the data, to predict unobserved values from the same system. Line then present basis for the channel calculations
2. Upper Channel Line – A line that runs parallel to the Line and is usually one to two standard deviations above the Line.
3. Lower Channel Line – This line runs parallel to the Line and is usually one to two standard deviations below the Line.
Unlike Fibonacci Channels and Andrew’s , Channels are calculated using statistical methods, both for the regression line (as expressed above) and deviation channels. Upper and Lower channel lines are presenting the idea of bell curve method, also known as a normal distribution and are calculated using standard deviation function.
A standard deviation include 68% of the data points, two standard deviations include approximately 95% of the data points and any data point that appears outside two standard deviations is very rare.
It is often assumed that the data points will move back toward the average, or regress and channels would allow us to see when a security is overbought or oversold and ready to revert to the mean
please note : Over time, the price will move up and down, and the channel will experience changes as old prices fall off and new prices appear
█ Linear Regression Study Features
Linear Regression Channel
- line as basis
- Customizable multiple channels based on Standard Deviation
- ALERTs for the channel levels
Linear Regression Curve
- curve as basis
- Optional : Bands based on Standard Deviation or (ATR). Bands are applied with fixed levels 1, 2 and 3 times StdDev or ATR away from the curve
Linear Regression Slope
- Optional : Up/Down slope arrows for a used defined period
█ Volume / Add-Ons
High Volatile Bar Indication
Volume Spike Bar Indication
Volume Weighted Colored Bars
Trading success is all about following your trading strategy and the indicators should fit within your trading strategy, and not to be traded upon solely
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Default lookback period (count) of Linear Regression Channel values are set as
1st Channel - 200
2nd Channel - 50
added ability to plot higher time frame ("1D",, "4H", and "1H") linear regression channel on intraday bar. option is available with the second linear regression channel, please check details in the tooltip option with usage info
ability to set period to maximum allowed lenght (5000)
* enhanced label customization options
* alert additions, First Linear Regression Median Line versus Second Linear Regression Median and Deviation Line crosses
* Pine v5