Extended Regression Stop And Reverse indicator is n based on some
popular and very useful indicator as Stop and reverse Regression
Channel and Polynomial Channnel. The result is a very powerful
indicator to interpret the market and obtain probable forecasts.
When
launched, the Extended Regression StopAndReverse indicator
automatically determines the timeframe, calculates two types of
regression on the current timeframe, and calculates the
root-mean-square deviation of the price in this range. First of all,
the straight golden line is important to us - the regression line of
the first degree, showing the direction and state of the current true
trend on the selected timeframe. It is clear that the greater the
angle with the horizontal, the stronger the trend. Thus, we are able
to draw some conclusions regarding the state of the currency pair at
the current location of the price relative to the regression line.
For example, in the most general case, if the ray is upward, and the
price is below the ray, this indicates the recent end of a minor
correction, and we should expect a natural transition of the price to
the area above the regression ray as part of the continuation of the
trend.
At
a certain distance from the gold line, parallel lines of support and
resistance along the trend line. They, respectively, are below and
above the trend line. These are actual linear threshold levels, since
they are plotted based on the mean-square deviation in the calculated
range with the corresponding Fibonacci coefficient.
Using
the value of the root-mean-square deviation and the corresponding
Fibonacci coefficients, the indicator uses a special algorithm to
calculate the values of the adaptive stop and stop / reverse
levels for the current price. These levels can be interpreted as
instantaneous deviation limit values at the time section of the
last bar. These values are shown with colored dots above and /
or below the price in accordance with the state of the currency pair.
Points
of blue shades are drawn below the price, the lighter ones are
“stop”, the darker ones are “stop / reversal”. Dots of red
shades are drawn above the price, and also show the levels of stops
and reversals. For any price value on any bar, the indicator always
displays only two levels of instantaneous values, and not all four.
This helps to draw appropriate conclusions about the state of the
trend. An important detail is that when one or two stop levels are
truly broken through, when the bar's closing price goes beyond the
corresponding level, the indicator displays this reversal of
instantaneous values - say, if these were resistance levels
before breaking through, then after breaking through the indicator
draws instant support levels instead . Thus, if you see a reverse -
this is at least a short-term trend change to a minor correction.
Based
on the given regression coefficient, the corresponding non-linear
channel is calculated and displayed, which is necessary for
predicting the near future, and in addition it plays the same role as
the linear channel, that is, the display of actual support and
resistance levels, but dynamically and non-linearly changing in time.
By default, the coefficient of parabolic regression is used, i.e. 2.
Input
parameters
_RegressionDegree
- degree of nonlinear regression; appropriate values are 2 or
3.
_K_DeviationChannel
- factor for deviation (not the Fibonacci coefficient!); allows you
to set the factor for deviation, the appropriate value is 2, but the
value 3 can be useful to someone.
Interpretation
of indicator readings is relatively simple:
Suppose
a nonlinear regression channel bends and crosses the gold line of an
uptrend from top to bottom. This is a signal of exhaustion - a
correction or even a change in trend should be expected.
If
it crosses it from the bottom up - this is a signal of increasing
trend strength.
With
downtrend, everything is, accordingly, the opposite. You also need to
switch to the senior and junior timeframe and see the situation
there.
Price
crossing of support or resistance lines:
If
the price jumped out for resistance with an uptrend, we should expect
it to return to the channel, but it is not necessary to close our
orders at all.
If
the price jumps out for support during an uptrend, a strong
correction should be expected if it breaks through both stop /
reversal levels.
For
a more accurate understanding of the situation, it is also necessary
to take into account the state of the channel relative to the golden
trend line, and the readings on adjacent timeframes. Accordingly,
with a downtrend, the opposite is true.
All
channels are dynamically recalculated and redrawn with each new bar
depending on the current market situation. Despite the rather
complicated math, the Extended Regression StopAndReverse indicator
absolutely does not load the processor and does not require special
computer resources.
In
the pictures Extend Regression – Stop and Reverse- Indicator MT4.
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