Linear Regression Trading the Forex
Linear regression in Forex refers to a model in which the conditional mean of y given the value of X is an affine function of X. Linear regression’s goal is price prediction, or forecasting, so traders use linear regression to fit a predictive model of an observed data set of y and X values. After developing such a model, if an additional value of X is then given without its accompanying value of y, the fitted model can be used to make a prediction of the value of y. The forecast is very dependent on the additional value the trader use for x. If this value is not accurate neither will the value of y, rendering the prediction useless.
A properly fitted linear regression model is used to identify the relationship between a single predictor variable x and the response variable y when all the other predictor variables in the model are steady.
When using Linear Regression trading the Forex market we start with a trend line. A trend line represents the long-term movement in data. It tells whether prices have increased or decreased over the period of time. A trend line could simply be drawn by eye through a set of data points, but more properly their position and slope is calculated using statistical techniques like linear regression.
I do not use any Linear Regression when trading Forex .