Regression channel trading
Regression channel trading strategy is one of the simplest and it is very easy for beginners.
A line of linear regression is a more accurate way of drawing a trendline.
Both are indicative of the persistence of a movement: the trendline assures the continuing of a trend until the point where the trend is interrupted; whereas a line of linear regression allows the trend to oscillate around it. This is why we associate a channel to the line, whose extremes are placed at a determined distance from the line.
This distance is known as a standard deviation and informs us that the examined movement will persist while the prices remain within the channel and do not exceed the parameters.
It should be noted that when a movement is regarded as having ended, it is by no means a guarantee that a contrary movement will begin.
The regression channel has no preferred or perfect timeframe to be used with, but on the contrary, it works well with any time period.
Therefore it is possibile to apply it on long term charts, monthly and weekly, on daily charts and on intraday charts of 60minute, 30, 15, 5 and even 1 minute.
The indications that we can gain will be the same, and so too the implications.
Having the freedom to apply the same tools on charts with varying timeframes, should not override the general rule in using charts efficiently: a weekly chart will be more relevant to a daily, which will be more relevant than a 60 minute, etc etc, cascading down to the 1 minute chart.
It is therefore possibile to apply linear regression channels to graphs with varying timeframes amongst them, and it is even possibile to highlight minor counter-trends within the more important trends.
The object of any trader is to buy low and sell high within a trend cycle. So what happens when price is moving toward the lower bound of an up-trending channel? It can provide a potential level to buy the currency pair, if the trade is still backed by solid fundamentals.
The same is true when price is approaching the upper bound of a down-trending channel. It can provide a higher probability sell area. These levels are even more powerful when used in confluence with other levels of support and resistance. These may include swing highs / lows, pivots, and Fibonacci levels.
Regression Channels contain price movement, with the bottom channel line providing support and the top channel line providing resistance. Prices may extend outside of the channel for a short period of time. However, if prices remain outside the channel for a long period of time, a reversal in trend may be imminent.
Hopefully this post has helped you understand a little better how you can apply Regression Channels to your trading!!!!!!!!!!