Linear regression is an indicator that tries to show the trend on past price data.

This indicator uses the least square method to calculate the price.

Linear regression is practically a line that cuts through price.

It shows the equilibrium price. When the price is over the linear regression line, it indicates that buyers are more anxious and accordingly the price is up for the time specified.

When the price is under the Linear regression it means that sellers are on the move and the trend is down for the time frame specified.

Linear regression can be used as trading system, this means that we can trade according to the direction of the linear regression line.

If if is up we buy, and if it is down we sell.

Another way is to draw a linear regression line.

This cuts through the price.

Then we draw two lines parallel with the linear regression line, one above and one below.

This creates a linear regression channel.

The upper boundary is the resistance level, and the lower is the support level.

When prices go outside the line it should reverse back inside the channel.

The idea being that there is a force in the market that pushes the price back to Linear regression.

However, if the price stays outside the channel for a long length of time, then it means the linear regression is broken and a new one must be identified.