Linear Regression Channel / Curve / Slope by DGT

The Linear Regression Channel / Curve / Slope indicator provides a comprehensive statistical suite for trend identification, reversion analysis, and volatility tracking using least-squares regression techniques. It offers traders multiple visualization methods, including dynamic channels, smoothed curves, and slope indications to determine if a security is overbought or oversold relative to its historical trend.

Usage

The Usage section describes how the script can be used to identify trend direction and potential mean reversion points.

• Linear Regression Channels: Traders use these to establish a "best-fit" path for price action. When price reaches the upper or lower standard deviation bands, it may indicate overbought or oversold conditions, suggesting a potential move back toward the median regression line.
• Linear Regression Curve: Unlike the static channel which projects a straight line over a fixed lookback, the curve plots the ending value of the regression calculation for every bar. This provides a smoothed trendline that can be used similarly to a moving average but with less lag.
• Higher Timeframe (HTF) Analysis: The script allows for a second regression channel projected from a higher timeframe (e.g., 1H, 4H, or 1D). This helps traders maintain a "top-down" perspective on the primary trend while navigating lower-interval price action.
• Volume and Volatility Add-ons: The indicator includes visual markers for high-volatility bars (ATR-based) and volume spikes. These can be used to identify exhaustion points or the start of significant trend shifts.

Details

The script utilizes the least-squares statistical technique to calculate a linear regression line that best fits the data points within a specified lookback period.

• Standard Deviation Bands: The channel levels are calculated using normal distribution principles. Generally, one standard deviation captures approximately 68% of price action, while two standard deviations capture roughly 95%. Movements outside these bands are statistically rare and often precede mean reversion.
• Linear Regression Curve & Bands: The curve represents the "endpoint" of a linear regression line for each bar. Traders can apply bands based on either Standard Deviation or Average True Range (ATR) to create dynamic support and resistance zones.
• Slope Calculation: The slope indicates the rate of change of the regression line. Upward and downward arrows can be toggled to highlight changes in trend momentum over a user-defined period.

Settings

Linear Regression — 1st Channel

• LinReg1 ⇨ Count: Sets the number of bars used to calculate the primary regression line.
• Source: The price input used for the calculation (default is Close).
• Extend Lines: Extends the channel lines indefinitely to the right.
• Use Trend Colors: Changes the line colors based on the direction of the slope.
• StdDev (1, 2, 3): Toggles and adjusts the multiplier for up to three standard deviation channel levels.

Linear Regression — 2nd Channel (HTF)

• Extend to User-Defined TF: Enables the projection of a regression channel from a higher timeframe.
• HTF Selection: Choose between 1D, 4H, or 1H for the higher timeframe basis.
• Shorten Display: Limits the historical calculation to prevent performance issues on lower timeframes.

Linear Regression Curve

• Linear Regression Curve Length: Adjusts the period for the smoothed regression curve.
• Bands Type: Selects between Standard Deviation or ATR for the curve's outer envelopes.

Volume / Volatility AddOns

• High Volatility (⚡): Highlights bars where the range exceeds the ATR multiplied by a specific threshold.
• Volume Spike (🚦): Marks bars where volume significantly exceeds the Volume Moving Average.
• VWCB (Volume-Weighted Colored Bars): Colors candles based on relative volume intensity (High, Medium, or Low).

FAQ

How do I interpret price moving outside the outer channel lines? Price moving outside the second or third standard deviation bands is statistically rare (occurring less than 5% of the time). It often suggests an overextended market that is likely to revert toward the median linear regression line.

What is the difference between the Channel and the Curve? The Channel draws a straight "best-fit" line over a specific window of time (e.g., the last 200 bars). The Curve plots a continuous, flowing line by recording the end value of a regression calculation at every single bar, making it more reactive to recent price changes.

How can I access this indicator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.