Regression Curve

Technical Analysis

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Technical Analysis

Technical Analysis, Studies, Indicators:

Regression Curve

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Description: technical analysis, regression line, regression curve, price trend, technical studies, indicators, signals, charts, analysis, regression channel

The Regression Curve is a line that best fit price over specified period of bars. In technical analysis, Regression Curve is considered as a fair value of a stock, index or any other tradable commodity at given time. Since the regression Curve belongs to the same group of technical studies as Linear Regression Line and Regression Channel it is used in similar way.

Technical analysis theory states that when a stock, index or any other commodity is traded above or below its Regression Curve, in most cases, it tries to move back and closer to its fair value (or closer to its Regression Curve). This characteristics is used by some traders to build a trading system that generates

a Sell signal when price moves above the Regression Curve for a certain number of points (certain %)
and a Buy signal when price drops below the Regression Curve for a certain number of points (certain %).

As a rule in such trading systems a trade is closed when price touches its Regression Curve - a stock, index or any other commodity is traded at its fair market value.

Chart 1: Dow Jones Industrials Index (^DJI) - Regression Crve

DJI Regression Curve

V. K.

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