Srading.com

Menu
  • Home
  • Markets
    • Forex
    • Stock
  • Fundamental Analysis
    • Economics
    • Money & Banking
  • Technical Analysis
    • Drawing Tools
    • Chart Patterns
  • Tools
    • Online Charts
    • Economic Calendar
    • Interest Rate Today (Live Widget)
    • Forex Market Hours
    • Currency Indexes Chart
    • National Holiday Calendar
    • CoT Chart
    • Quotes
Home
Technical Analysis
Drawing Tools
Linear Regression: Calculation and How to Use It in Trading?
Drawing Tools

Linear Regression: Calculation and How to Use It in Trading?

June 6, 2022 Zafari

A linear regression channel is consist of three lines using a statistical technique that best suits the middle of a dispersed set of values.

Linear Regression: Calculation and How to Use It in Trading?

The formula of Linear Regression is the following:
Y = a + bX
Where;
X: is a dependent variable
Y: is a dependent variable
a: a constant price
b: is the slope of the line

In the chart of a financial asset, the closing prices of a trend are observations. The price is y-axes, and the time is x-axes. X or the time is the independent variable, and the Y or price is the dependent variable.

To use it effectively, make sure that there is a channel. If there is no channel, it is not helpful at all.
A regression channel has three lines. In this channel, the middle line is a regression line, drawn based on the closing prices of the candlesticks, which act as observations. And, the outer lines represent support and resistance lines in a trend.

The distance of the support line from the centerline is equal to the distance from the resistance line. That is why, if there is no channel, the regression channel is not worth using.

Read more: What is the Standard Deviation Channel?

How to Insert the Linear Regression Channel in MT4 and MT5

To insert the regression channel, go to insert tab>objects>channels, and finally, click on regression channel. You can also insert it from Line Studies toolbar if you have added it.

Inserting Linear Regression Channel in MT4
Inserting Linear Regression Channel in MT4 by MetaQuotes Software

To draw a regression channel, left-click on a candlestick that you want to be the channel’s beginning and pull it toward where you want it to end.

The regression channel has three lines that go parallel. The centerline is the linear regression line, drawn based on its formula. The two outer lines are drawn automatically by touching the highest closing or lowest closing price from the centerline. Please note, that if you pull the channel beyond the current candlestick, this channel will not work.

To use it more effectively, tick the Ray Left on the parameters tab of the properties of the regression window.

The Properties of a Regression Channel in MT4 and MT5

To open the properties of the linear regression channel, right-click on any dots on the centerline of the channel, and finally, left-click on the first option. It has three taps, namely common, parameters, and visualization. 

Linear Regression Channel in MT4
Linear Regression Channel in MT4 by MetaQuotes Software

In the common tap, you can design the lines of the regression channel. 

The parameters tab in MT5 contains:

  • First Date: represents the starting point ( of the candlestick or timeframe) of the regression channel; 
  • Second Date: represents the ending point (candlestick or timeframe) of the regression channel;
  • Ray Right: if you tick, the channel lines will continue to the right side;
  • Ray Left: if you tick, the channel lines will continue to the left side; and
  • Fill: if you tick, the color of the channel’s lines will fill it. 

Note: in the MetaTrader 4, you may not see some of these options. 

Finally, the Visualization tab consists of timeframes in which you want to see your channel.

Share
Tweet
Linkedin
Pinterest
Reddit
Email
Prev Article
Next Article
Tags:Forex Stocks Technical Analysis

Related Articles

Standard Deviation: Calculation, Channel and More

Standard Deviation: Calculation, Channel and More

What Is Trend in Finance? How to Determine a Trend?

What Is Trend in Finance? How to Determine a Trend?

Moving Average Envelopes Indicator Explained

Moving Average Envelopes Indicator Explained

Commodity Channel Index (CCI): Calculation and Trading Strategy

Commodity Channel Index (CCI): Calculation and Trading Strategy

What is Fibonacci Time Zones & How to Use It?

What is Fibonacci Time Zones & How to Use It?

What is A Fibonacci Expansion & How to Use It?

What is A Fibonacci Expansion & How to Use It?

About The Author

Zafari

Zafari is a professional trader and has been in the financial market since 2014. He has a bachelor of public economics and an MBA. For some reason, he does not show his face. And he loves you all!

Leave a Reply Cancel Reply

Recent Posts

  • Capitalism: The Definitive Guide
    What Is Capitalism? Capitalism is an economic and political system …
  • Trading Checklist: What It Is, Info-graphic, and …
    What Is a Trading Checklist? A trading checklist is a …
  • Private Equity (PE): What It Is, How …
    Private equity is an investment in a private company. The …
  • Government Spending: The Definitive Guide
    Government spending refers to the government’s total expense and the …
  • Three Basic Economic Questions Explained in Simple …
    Three basic economic questions are: Who answers these questions? The …

Popular Posts

    Srading.com

    QUICK LINKS

    • About
    • Cookies Policy
    • Terms & Conditions
    • Disclaimer
    • Privacy Policy
    • Contact Us

    LATEST POSTS

    • Capitalism: The Definitive Guide
    • Trading Checklist: What It Is, Info-graphic, and PDF
    • Private Equity (PE): What It Is, How It Works, & How to Get In
    • Government Spending: The Definitive Guide
    • Three Basic Economic Questions Explained in Simple Words

    FOLLOW US ON SOCIAL MEDIA

    • Facebook
    • Twitter
    • LinkedIn
    • Instagram
    • Pinterest
    • Telegram
    • Reddit
    • YouTube

    Trading financial assets are risky. Everything you read on this website is just for educational purposes or personal opinions only. Read our DISCLAIMER!

    Copyright © 2025 Srading.com
    Call on WhatsApp

    Ad Blocker Detected

    Our website is made possible by displaying online advertisements to our visitors. Please consider supporting us by disabling your ad blocker.

    Refresh
    We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By continuing this website or clicking “Accept”, you consent to the use of ALL the cookies.
    Do not sell my personal information.
    Cookie SettingsAccept
    Cookies Policy
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
    CookieDurationDescription
    cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
    cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
    cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
    cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
    cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
    viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
    Functional
    Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
    Performance
    Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
    Analytics
    Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
    Advertisement
    Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
    Others
    Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
    SAVE & ACCEPT