How Does This Indicator Work?
A linear regression indicator draws a straight line of best fit on a chart. The PRC indicator applies a polynomial function to the linear regression function to adapt itself to the flow of market prices. Since they are regression bands that self adjust for volatility. We have modified this indicator to display on the screen the buy and sell signals when the symbol price is between the upper and lower channels.
Polynomial Regression Channel (RTX) Polynomial Regression Channel (PRC) is an RTX Extension indicator that draws a best fit n-degree polynomial regression line through a recent period of data. Setup parameters for the indicator include the degree of the polynomial (1 - 6) and the number of bars to analyze.
Adjustable Indicator Settings
This indicator has some extra settings to make life easier for the trader to manually trade.
- Show copyright info. - displays a message on the screen showing developer.
- Show trade signal - displays a signal on the screen for trade entry and exit.
- Signal chart position - allows you to set the location for the trade signal text.
- Degree - Degree of the polynomial (1 - 6)
- Period - this is the period for the indicator.
- Inner band deviation - the inner dotted line deviation from the centre PRC line.
- Outer band deviation - the outer dotted line deviation from the centre PRC line.
- Mid-range - this is the centre PRC line.
- Sell lower - this is the lower sell band.
- Sell upper - this is the upper sell band.
- Buy upper - this is the buy upper band.
- Buy lower - this is the buy lower band.
How to Trade Using This Indicator
The upper and lower channel lines contain between themselves either 68% of all prices.
If a deviation value of 1 is used the channel should contain 95% of all prices.
If a deviation of 2 or above is used then the prices should break outside of the channels indicating one of the following.
Polynomial Regression Channel Buy Signal
When the price falls below the lower channel line, a buy signal is usually triggered.
Polynomial Regression Channel Sell Signal
An opportunity for selling occurs when prices break above the upper channel line.
Other confirmation signs like prices closing back inside the linear regression channel could be used to initiate buy or sell orders. Also, other technical indicators should be used to confirm.
When price closes outside of the Polynomial Regression Channel for long periods of time, this is often interpreted as an early signal that the past price trend may be breaking and a significant reversal might be near. Polynomial Regression Channels are quite useful technical analysis charting tools. In addition to identifying trends and trend direction, the use of standard deviation gives traders ideas as to when prices are becoming overbought or oversold relative to the long term trend.
Watch a Video Demonstration
The video has been uploaded to 1080p High Quality, so do not forget to set your U-Tube video quality to 1080p HD.
Duration: 7 minutes