Regression lines are a tool that allows you t see the extreme upper and lower range of the vast majority of price action.It takes a block a data and runs a calculation which gives you a clear picture of the range on which the prices fall between. This tool is useful to identify where the price falls within a certain range, and if we’re at the upper or lower bounds of a overall trend.
If you get a nice channel like this and the line of best fit takes all of your data and fits it nicely into this envelope, it really indicates that you are indeed in a trend and it gives you a couple of limitations both upper and lower, that you can use to try to determine when you’re going to have a trend change.
So the majority of the price action is going to be inside this envelope. And when you move beyond it, it often indicates you’re going to be facing breakout or breakdown conditions. And this is an example. We can see almost all of our trading actions inside this nice side. We’ve channel represented by our regression line.
But when we break it, that support, the price simply collapses. So regression lines not as common as our moving average indicators or our trend lines that we’re going to discuss next. But it can be a useful tool for easily visualizing when you’re in trend conditions.