Extended Regression StopAndReverse Indicator: The Best Regression Channel Indicator

Extended Regression StopAndReverse indicator is written based on some popular and very useful programs, scripts and experts.

When started, the Extended Regression StopAndReverse indicator automatically detects timeframe, calculates two types of regression on the current timeframe and calculates the RMS deviation of the price on the given range. First of all, we need a straight golden line - a first-degree regression line 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 can draw some conclusions regarding the state of the currency pair on the basis of the current price position relatively to the regression line. For example, in the most general case if the ray is ascending and the price is below the ray, it means the recent end of a shallow correction and we should expect a natural price movement into the area above the regression ray within the trend continuation.

At some distance from the gold line there are parallel lines support и resistance on the trend line. They are, respectively, below and above the trend line. These are valid linear threshold levels, since they are constructed according to the value of RMS deviation on the calculated range with the corresponding Fibonacci coefficient.

Using the mean square deviation value and corresponding Fibonacci coefficients, the indicator calculates the values of adaptive "stop" and "stop/reversal" levels for the current price according to a special algorithm. These levels can be interpreted as instantaneous limit values of deviation in the time section of the last bar. These values are shown with colored dots above and/or below the price according to 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". Points 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, not all four. This helps to draw appropriate conclusions about the state of the trend. Important detail - if there is a breakout of one or two stop levels, when the bar closing price exceeds the corresponding level, the indicator reflects this event by reversing the instantaneous values - for example, if before the breakout those were resistance levels, after the breakout the indicator shows the instantaneous support levels instead. Thus, if you see a reversal - it is at least a short-term trend change to a small correction.

According to the specified regression coefficient, the corresponding non-linear channel is calculated and displayed, which is necessary for forecasting the nearest future, and besides it performs the same role as the linear channel, i.e. displaying the actual support and resistance levels, but dynamically and non-linearly changing in time. The parabolic regression coefficient, i.e. 2, is used by default.

Input parameters

• _RegressionDegree - degree of non-linear regression; reasonable values are 2 or 3.
• _K_DeviationChannel - multiplier to deviation (not Fibonacci coefficient!); allows to set multiplier to deviation, reasonable value is 2, but someone may find 3 useful.

The interpretation of the indicator readings is relatively simple:

• Suppose the non-linear regression channel curves and crosses the gold line upward trend from top to bottom. This is a signal of exhaustion - we should expect a correction or even a change of trend.
• If it crosses it from bottom to top, it is a signal of increasing trend strength.

In the case of a downward trend, it is the opposite, respectively. It is also necessary to switch to a higher and lower timeframe and see the situation there.

Price crosses support or resistance lines:

• If the price has jumped over resistance in an uptrend, expect it to return to the channel, but do not necessarily close your orders.
• If the price jumps behind support during an up-trend, we should expect a strong correctionsif it breaks through both stop/turn 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 readings on adjacent timeframes. Accordingly, the opposite is true in a downtrend.

All channels are dynamically recalculated and redrawn with every new bar depending on the current market situation. Despite the rather complex mathematics, the Extended Regression StopAndReverse indicator does not load the processor at all and does not require special computer resources.

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