Today, I will show you the Linear Regression Forecast indicator which is a trend following indicator. IQ Option has a wide selection of indicators available for its users. They are of different types and serve different purposes. But all of them are there to help you conduct proper market analysis.
Introduction to the Linear Regression Forecast indicator
You will be able to identify the trend with many indicators and the Linear Regression Forecast is one of them. It is plotted the endpoints of the entire set of linear regression lines generated on subsequent days. In a way, it is similar to moving averages but it responds faster to changes in the price direction and thus shows less delay. On the other hand, it is more susceptible to whipsaws.
Setting up the chart
You must be logged in to your trading account. Think about the asset you wish to trade and the amount of money to invest. To add the indicator click on the indicators icon and find the Linear Regression Forecast on the list. You can find it in the group of trend indicators.
The indicator comes with default settings. Its period is 14. You can, however, adjust the period according to your needs.
Using the Linear Regression Forecast in trading
Using the Linear Regression Forecast is recommended during a strong trend. Trading signals are produced when the indicator changes its direction. Therefore a general rule is to open a long transaction when the Linear Regression Forecast begins to move upwards and a short transaction when it starts to fall. It can be also an indication to exit your trade. So if you have a short transaction opened, you should end it when the indicator begins to rise. Close a long position when the indicator turns down.
Another approach says you can enter trades at the crossings of the price with the Linear Regression Forecast.
Also, you should consider the possibility to add the Linear Regression Forecast indicator with the longer period as a filter. Please take a look at the GBPUSD chart below.
The above chart adds 2 Linear Regression Forecast indicators. The first has a period of 100 and the second has a period of 300. One by one according to the numbering I will discuss what actions you could have taken to trade successfully. The Linear Regression Forecast with a period of 300 is used to give us an indication of the main trend.
- LRF(300) goes up. The price crosses upwards LRF(100). This is a signal to take a long position.
- LRF(100) changes direction to downward. This is a signal to close a long position.
- LRF(300) continues to be upward and the price crosses LRF(100) upwards. This is another opportunity to open a long position.
- LRF(100) changes its direction from upward to downward. The previously opened long position should be closed here.
Analogous actions can be carried out in a downtrend. This type of strategy works well in trending markets in virtually any time frame.
Is linear regression good for forecasting?
Indicators help in technical analysis. The Linear Regression Forecast will serve in identifying the trend and producing trading signals. It is a trend-following indicator that works in a similar way to the moving averages.
Remember it is always a good idea to use an extra confirmation for the signals received. Another Linear Regression Forecast indicator may be applied as a filter.
IQ Option has a demo account in its offer. It is absolutely free of charge so do not hesitate, to open one if you have not done it yet and practice trading with the Linear Regression Forecast. You will not lose your money and you will get time to know the indicator well. To earn some real profits, however, you will have to shift to the live IQ Option account.
Wish you good luck!
General Risk Warning: The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose
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