Linear Regression Intercept indicator is one type of indicator which is once again calculated by using the Linear Regression or LR technique same like Linear Reg Forecast Indicator. This indicator indicates the value of the Y (which is generally the price) when the value of (X which is the time series) is 0. It is generally used along with the Linear Regression Slope to create the LR Line. This indicator intercept along with the Slope creates the LR line.
In Linear Regression Intercept indicator, Linear regression is a statistical tool used to help predict future value over extended values. Which is used as a quantitative way to determine the underlying trend and when prices are overextended. This indicator plots the intercept for the trend line for each data point.
In Zerodha Kite LR Intercept Indicator is present in the short form of Linear Reg Intercept Indicator. It can be attached to the chart from the STUDIES section. The default parameter of this indicator is 14. See the image below on how we added the indicator on a daily chart of Reliance Industries.
This indicator indicates the first and starting value of the regression line. The calculation of this indicator can be used by technical analysts to backtest assumptions and regression lines given a data set and compare the predicted line and its calculated intercept against the actual historical price value. This Linear Regression Intercept Indicator may be useful as a confirmation of assumptions and identified patterns.
As previously I wrote that this Linear Reg Intercept Indicator can be used along with the LR line on the same chart, see the image below on how we added the LR line to the Crude Oil hourly chart. The LR line can be added by clicking the draw pencil icon on the upper right corner of the chart and then selecting Regression Line from the Drawings drop down.
For example of this indicator when using the capital asset pricing model, the Linear Regression Intercept Indicator may also be used to evaluate the performance of a stock or a fund with that of the index or market. This will help in indicating how much better or worse a stock or fund did than the CAPM (capital asset pricing model) predicted. If the client breaks down the linear regression equation into two parts, one part is the intercept and the other part is the price movement of the market. This price movement of the market is explained by the regression.
Categories: Technical Indicators