Why I have been using the Linear Regression Indicator for over 8 years

Lets start off by saying indicators lag and are connected to Price movements and so on most Brokers platforms they are really a waste of time. As a good analogue its like being told its raining - just after you have got wet through and are drying out ;-)

I would also say the average Brokers chart package is about as accurate as a 1950's Buick's speedometer - ie when it showing 60 mph - you were probably doing only 51 mph - ie over a 10-15% error.

This is just one of the reasons why I ignore the commercial trading world favourite - ie the ubiquitous 20 / 50 / 100 and 200 moving average set up - on what ever lagging time frame you want to view it on.

Even on a 1 hr time frame - which is just far too lagging for a Intraday trader - a move will have already gone 10 -25 pips - before you get any real clues . Ie a possible trade with a RR of 3 or 4 plus already happening - and you just ignore it ;-) ?

Is there an answer - sure - yes you could tighten up what ever type of MA you use ie try an 8 or a 10 for a start - but its still way behind the action .

My answer is a far better indicator that if required can be used on any time frame and is far superior to any MA - yes the LR - or linear regression indicator ( not lines or slope - different again )

I will not bore you with all the technical advantages - but will provide links to read about them in more detail in future comments.

The nice thing I like about them is that they are just more accurate - and on the correct settings -( which is never the standard settings on any indicator) they will go over and under price and give you great clues on what will happen next.

I first started using after being recommended the Intellicharts Pro set up - which at the time ( 2004 /5) had a unique setting on a LR 2 - that just could not be replicated on other brokers charts.

That got me interested and then after playing with LR's on 4 different brokers charts - i was amazed by how much they differed - ie not just say 1 -3 pips - but in some cases readings could be 15 and 20 pips out ( yes 1950's Buick speedo's all over again )

Lets start by giving you example of clues for reading price on 2 of my favourite charts - ie 10 second Tick chart and the 1 minute.

I will attach a few charts on different pairs and then go on later to explain more later

Please view attachments to follow as well

Regards

F

Forexmospherian said:

Lets start off by saying indicators lag and are connected to Price movements and so on most Brokers platforms they are really a waste of time. As a good analogue its like being told its raining - just after you have got wet through and are drying out ;-)

I would also say the average Brokers chart package is about as accurate as a 1950's Buick's speedometer - ie when it showing 60 mph - you were probably doing only 51 mph - ie over a 10-15% error.

This is just one of the reasons why I ignore the commercial trading world favourite - ie the ubiquitous 20 / 50 / 100 and 200 moving average set up - on what ever lagging time frame you want to view it on.

Even on a 1 hr time frame - which is just far too lagging for a Intraday trader - a move will have already gone 10 -25 pips - before you get any real clues . Ie a possible trade with a RR of 3 or 4 plus already happening - and you just ignore it ;-) ?

Is there an answer - sure - yes you could tighten up what ever type of MA you use ie try an 8 or a 10 for a start - but its still way behind the action .

My answer is a far better indicator that if required can be used on any time frame and is far superior to any MA - yes the LR - or linear regression indicator ( not lines or slope - different again )

I will not bore you with all the technical advantages - but will provide links to read about them in more detail in future comments.

The nice thing I like about them is that they are just more accurate - and on the correct settings -( which is never the standard settings on any indicator) they will go over and under price and give you great clues on what will happen next.

I first started using after being recommended the Intellicharts Pro set up - which at the time ( 2004 /5) had a unique setting on a LR 2 - that just could not be replicated on other brokers charts.

That got me interested and then after playing with LR's on 4 different brokers charts - i was amazed by how much they differed - ie not just say 1 -3 pips - but in some cases readings could be 15 and 20 pips out ( yes 1950's Buick speedo's all over again )

Lets start by giving you example of clues for reading price on 2 of my favourite charts - ie 10 second Tick chart and the 1 minute.

I will attach a few charts on different pairs and then go on later to explain more later

Please view attachments to follow as well

Regards

F

Click to expand...

What is a 10 second tick chart? Is it a 10 tick chart, or a 10 second chart?

Nice to see you trying to post something of content. Although it would have been nicer to at least list some of the advantages if you don't want to bore us with the details.

The first chart show some LR's on a tick chart - they are super responsive on a tick - but even on longer frames on this FXPro chart - they do things no MA's can ;-)

See attached

Yes the settings will be different - depending on the brokers chart package set up

Shakone said:

What is a 10 second tick chart? Is it a 10 tick chart, or a 10 second chart?

Nice to see you trying to post something of content. Although it would have been nicer to at least list some of the advantages if you don't want to bore us with the details.

Click to expand...

From what i understand - its a time movement chart ie instead of one candle appearing and closing within 60 seconds or 1 min - its a chart with 6 different tick movements within the 60 seconds or one min - ie you see more than on a standard 1 min chart

Don;t worry - loads more to explain and I will hold nothing back - why should I ;-)))


Regards

F

Here's on on of my favourites on a GU chart. I like to use 5 -9 different LR's so I can scalp both ways - and my highest setting on a 1 min chart would be 1750 to 1900 ;-)

Later - I will go into some of the advantages over MA's and also how they can assist you when there is divergence - and why they are a leading indicator not many talk about ( well normally if you find something good you don't tell anyone - in case it helps them more than you ....... No not my way as long as a trader as done over a year and understands the basics - ie how to lose - then you should assist them - it will still take them years to fine tune it and get to the level they require ;-)

Line up the questions - and see you later on - sometime

Regards

F

http://www.incrediblecharts.com/indicators/linear_regression_indicator.php - This link helps to explain a little more about the LR indicator

I have attached also a AU chart with the infamous LR2 setting - which was originally only on the Intellicharts Pro chart set up - but as now be copied for MT 4 etc

The blue line - ie LR 2 - actually printed in advance to a new candle - and when over the candle the price should pull back - and when under the candle price should rise

Like anything in trading its not 100% - probably over 65% and more when combined with other clues.

It was also a Leading indicator - not like 95% of the others - ie a lagging indicator

I don't need to use it like I used to 5 years ago as I prefer tick and 1 min charts to 4 hrs and daily - as I can hit higher RR's with tight stops and make more money with a 5 pip stop with a 20 pip target than a 150 pip stop and a 400 pip target.

So many traders just cannot understand this - but I sure the "wolf pack " gang do - lol
only joking - they are all pretty much switched on ;-)

OK - more over the rest of the week

Regards

F

Will post some more example of some LR set up's today - and even mention my range of settings later -

Is any body here or is this forum in my dreams ;-))

Lol - still am I enjoying myself and using LRs every day along with 4 more important "tools" needed for trading and making money every day.

Check out my Intraday short term thread in Discretionary Trading section and any questions I can alos answer there

Have a good day ;-)

I'm here!

Always open minded to considering different systems.

Would already challenge you on your suggestion of LR being a "leading indicator" - there simply isn't one. Not one indicator derived from price knows where the price is going before the price does itself!

But that said, looking forward to more details........

Hi Ivan

Thank you for commenting and you are welcome

Agree - a normal LR indicator is not a leading indicator - but that ubiquitous LR on a 2 setting on a Intellicharts Pro chart was - and worked really well on time frames over 30 mins.

For example at say 1 00pm Uk time - you might have a 2 hr and 4 hr chart close and a new one start at 12.00 and 1 second.

The LR 2 would either go above both 2 hr and 4 hrs at that time - ie prior to the new candle starting its 2 hr or 4 hr cycle and it would tell you if price would rise - by going under both candles - or drop by going over both candles

On its own 65-70% accurate - combine it with reading PA on small frames etc etc - you could get the accuracy up above 75% on testing it out on 100 trades

It was that good ;-)

Will go into more detail about it later on

Regards

F

I don't quite understand what you are talking about here. It is a lagging indicator and though used as a predictive evaluation for statistics it is no future teller. The formula is simply the least squares method of getting a straight line between prices. And then a plot is giving from which you derive the current trend. Extremely similar to a MA. I have tried even taking the average of open and close per bar and applying that price to the LR but gave up after that. I find it no better than a MA. If frequency of wave is too fast for chosen time frame or number of LR data points utilized, the indicator becomes useless. If a trend is present, it, just like an MA, will work beautifully. I don't use either in my trading. Useful to some perhaps but not for me.

Cheers

Hi Numbertea

Will have a look through my files to see if I can find a good example of a LR2 predicting ( yes predicting) the movement of a daily / weekly / monthly candle in advance at a new change - ie for example say your weekly candles changes on a Friday evening after the close - the LR 2 -will act as a leading indicator by going over the top of the new candle awaiting to form - if price is expected to drop or underneath the new candle if price is expected to rise.

Like anything in trading - it will never be 100% - but it was having a higher success than divergence on oscillators. It was unique to only Intellicharts programs and only worked on a 2 setting - not on a 1 or 3 setting.

As soon as I can find some past examples I will post them and may use them again In late December early January on some pairs as new examples for predictions over longer periods

With regards to comparing then to normal MA's they do have added advantages - not just less lagging but also acting as dynamic resistance directly above price turns - in advance - ie prior to a drop and opposite below price - prior to a turn up.

Hopefully the next lot of info I post will show more

Regards and good trading

F

Sorry guys have not updated this thread yet with more examples of a LR 2 or with my settings on normal LRs on small frame charts.

Will get around to doing both hopefully by the weekend and will also open some another thread in TA on multi chart frame ideas for syncing new trades.

Regards

F

I have attached one of my LR charts for yesterday - Friday 6th of December and the pair is the EU and of course - it was NFP day - so a "Freaky Friday" - days that many traders will keep away from fearing so many whipsaws they will just be fried ; )

This particular chart below is a 2 minute chart - I prefer to scalp on my tick chart and 1 minute chart and then follow most intraday trades on any frame up to 5 or 10 mins.

My key 5 -9 LR settings for any time frame from 1 min to 1 month are as follows

15 - 25 - 45 -95 - 115 - 180 - 285 - 500 - 900 - and for tick charts up to 1500 and even 1900.

The trouble is - I have been using LR's on charts for now over 8 years and during that time I have tried them on at least 10 different chart packages - from professional ones you pay $100 to $ 250 a month to use - to all the free ones brokers normally supply on their trading platforms.

My conclusions - based on my own facts - charts are just so different and are just not that accurate. So a 285 LR might need a 350 setting on one package and then only a 245 setting on other brokers charts - yes the differences are that bad.

My setting are based on my own preferences - ie what I am looking for - ie trades from 2- 5 pips trades from 5 -15 pips - trades from 10 -25 pips and then trades that should make over 25 pips.

All my trading stops are under 7 pips - if I cannot get an entry within 7 pips from a S or R - then I don't take the trade. Average stops on the EU are 3-5 pips - that's all what's needed normally - and I should know - I have taken many thousands live trades with these stop levels

Ideally I only want trades over 10 pips as a minimum ( RR of 2 normally) but accept that even if I pull with only 5 pips - its still a RR of 1 .

i do use other clues to assist on my trading - such as trendlines - S & R's - time windows - HH & HL's etc - game play - etc - intra trading to make good returns is just not easy - you need to be able to multi task thoughts and actions in seconds and minutes - ie its takes lots of training and experience ;-)

To get trades with RR's of 4 + - you do need all the LRs to be lining up - either on the waterfall effect from lower - or them all starting to turn up for higher.

Please don't think you can do the same on a 15 min or even a 30 min or 1 hr chart

No - the results will just not be so good - and you need larger stops - making it more difficult to obtain great RR's.

On good days with say 15 trades and 4 trades wrong over say 4 -7 hrs using just 1% stake my results would basically be ( with no "free trades that is and spreads included - normally 0.7 pips to 2 pips including commission)

Bad trades - 4 at average !% loss ( normally I would cut before a 5 pip stop if its not working - but less still say full 5 pip losses on each trade ) = 4% loss

Good trades - ( ie winners) 11 trades with on average - 7 will be only 3 -7 pips
3 will be approx 7 -15 pips
1 will be over 20 pips


So % terms total 7 at say three quarter % each - 3 at 2% each - 1 at 4% each - total 15%

Net result 15% winners minus 4% losses - (11% per day - yes 11% per day on just 1% stake risk )

11% per day returns on 1% stake sizes can easily be done on small retail accounts when all is going well - but not on large account due to so many other factors that would take a book to explain

Some days if i am only risking half a percent of my capital on stakes - I struggle to make 2- 3% per day especially if my win rate is not over 70% - the idea of using 2% stake from a $50k plus account on 5 pip stops is pushing it for me- as my psych and confidence then declines and i go out my own "trading zone"

If none of this makes sense to you - its probably because you have never done it - but I can assure you i have and many other traders have witnessed me doing it ;-)

Most commercial traders are happy with 4- 7% per month - never mind a day - but I would be if I was trading a few millions of my own money - as then its very big returns. However as already explained I hit my financial wall at 22 full lots per pip and nowadays the majority of all my trading is under 10 full lots per pip.

i hope you can appreciate my openness and if you still think I might be talking a load of rubbish - that's no problem - join me for a few hours in the Intraday trading thread else where and you can then see me call a few trades

Finally - re yesterdays EU chart - the 2 longer LR indicators were saying the EU should go up - and even when it dropped down to approx 3620 after NFP - it was still in up bias LR long term - it would have needed LH's and a LL - to turn down - but instead clawed its way back up and then made new highs again

Its all in the charts - but just not enough info on those world maps ie 4 hr plus charts - they are for guessers and traders needing 70+ pip stops - ie as the commercial world advises - but after all what do that lot know - commercial forex trading - is totally different to retail forex trading ;-))

Regards

F

Two more charts attached showing the LR at a 2 setting ( no will not work just changing settings to 2 - only on intellicharts Pro - or rewritten for MT4 set ups )

One example is 4 hrs the other weekly - the weekly LR2 was predicting every week correct for many months - all in advance ;-)

All indicators are supposed to be leading its just that they don't.

Nothing in the market is leading. It's all educated assumptions

I've tried 15-25-45-95-180-500 Lr on 10 , 30 tick charts. Quite promising , if somebody is looking 10-20 pips moves.

Linear regression has flaws same as anythng else, lag being one.
The other, same as trend lines is TF sensitivity and price axis scale.

In other words, depending on price axis scale and timeframe,
it will look completely different - namely the angle of the line...
Again, same as most things that work with trends, ranging is another weakness.
Used alone, like most things, its not much use.

Most people using LR or fibs and so on are mostly just using them as a crutch
with the main pointers coming from price level reaction, volume and tape etc.

MajorMagnuM said:

r.e trendline, this means that the s/r given by trendline will be inconsistent as x axis scale is variable?

Click to expand...

No that isn't what I said.
I said the angle is inconsistent.
S&R may or may not stand, but it is dependent on price level,
not a diagonal line someone chooses to draw themselves (as that diagonal line
has the inconsistent variables mentioned earlier, indicator or manually drawn).
Even then, S&R is no magic answer either.

Line angle as a proxy for trend strength is certainly vulnerable to
the variables of price axis and timeseries / tick value.