The Linear Reg Forecast Indicator is the short name for Linear Regression Forecast Indicator. Here, the underlying indicator is linear regression, which is a statistical tool mainly used to help in predicting future price values from past price values. In this indicators performs regression analysis on optionally smoothed price data, forecasts the regression lines if desired, and also creates standard deviation bands (optional in some charting software) above and below the regression line. In this indicator, the data, based on the price selected, is smoothed using the moving average period and type (optional in some charting software).
In Linear Regression Forecast Indicator, the values at each bar can optionally be forecasted values, determined by projecting the regression lines which have X bars into the future and X also being the forecast period. In some charting software, in this indicator, the standard deviation bands can then be drawn above and below the regression line, based on a number of standard deviations (standard deviation multiple) specified, and a standard deviation value computed using data in the regression period range.
We can now see this indicator very easily in Zerodha Kite. Just find the indicator in the STUDIES section and attach the same to any price chart. The default period of the indicator is 14. No other parameter is available in Zerodha Kite and standard deviation bands can’t be attached. See the image above to check how we attached the indicator on Bank Nifty index price chart.
In this Linear Regression Forecast Indicator, a smoothing period (default 14) causes the data to be pre-smoothed prior to performing regression analysis or forecasting. In some charting software, forecast period of this indicator takes the linear regression line ending at each point and projects it forward X number of bars, X being the forecast period. This projected value is then used as the LRF (Linear Reg forecast) value for that bar. In some charting software, the bands that are drawn use a standard deviation that changes over time. The standard deviations of this are computed just as they are for the Linear Regression study. The standard deviation multiplier specified in the preferences is multiplied by the standard deviation value to determine how far the bands will be drawn from the baseline.
Zerodha Kite shows a basic version of this Linear Reg Forecast Indicator. So smoothing period or standard deviation bands are available on Zerodha platform. However, it can give a basic idea of how the indicator works.
Categories: Technical Indicators