22 replies to this topic

[Islander]

R squared has little or nothing to do with forecasting, it merely says how well the regression coefficient fits the data points used. If R squared rises you have merely a better fit to the past data, but no reason to believe the trend will continue into the future, unless you have independent data suggesting a trend is developing. It is all in the mind of the beholder. An honest trend line tells you about as much about the future, if not more, and it will not mislead you about where support is likely. I suspect the next move will be determined by oil prices which are confused this morning. Best I

[jmicou]

kamakazeman, The MACD is rolling over, but does not have a bearish cross and is above the 0 line. Still says longs are favored for the OEX. The CCI is pointing up, but has yet to cross above the 0 line -- an aggressive long in conjunction with the other indicators. If the CCI were above the +100, then a long trend would seem to be in place. The CCI has a lot of room overhead. If the OEX were to breakout to the upside, there would be room to move up. It is interesting to compare the Dollar-Weighted Volume with the OEX MCSUM and OEX Volume MCSUM. The ADX on this chart is helpful as a swing indicator, too. How do you see it?

[TechSkeptic]

Thanx, UFO! That was a great contribution.

[traderpaul]

UFO, Trying new indicators is like walking into a Thai Resturant and point at the menu and say "give me this one".... You don't know what you are getting.....

[jmicou]

Thought a follow up to the first dollar weighted chart would be in order. As Bob K pointed out, the advanced volume to declined volume was really lopsided.

http://www.ttrader.c...20charts&id=982

[U.F.O.]

Thx. for all the kind words and helpful interpretations of this indicator. I'll post it periodically to see what pans out. We did get a strong move today although in a different direction than slope had been indicating. R-Squared actually reversed direction and moved lower today indicating to me that the budding uptrend was either aborted or delayed by this pullback. Here's the MetaStock interpretation of of R-Squared in it's entirety. I'll post today's chart in a different post. U.F.O. Interpretation r-squared values show the percentage of movement that can be explained by linear regression. For example, if the r-squared value over 20 days is at 70%, this means that 70% of the movement of the security is explained by linear regression. The other 30% is unexplained random noise. It is helpful to consider r-squared in relation to Slope (see Linear Regression Slope). While Slope gives you the general direction of the trend (positive or negative), r-squared gives you the strength of the trend. A high r-squared value can be associated with a high positive or negative Slope. Although it is useful to know the r-squared value, ideally, you should use r-squared in tandem with Slope. High r-squared values accompanied by a small Slope may not interest short term traders. However, high r-squared values accompanied by a large Slope value may be of huge interest to traders. One of the most useful way to use r-squared is as a confirming indicator. Momentum based indicators (e.g., Stochastics, RSI, CCI, etc.) and moving average systems require a confirmation of trend in order to be consistently effective. R-squared provides a means of quantifying the "trendiness" of prices. If r-squared is above its critical value and heading up, you can be 95% confident that a strong trend is present. When using momentum based indicators, only trade overbought/oversold levels if you have determined that prices are trendless or weakening (i.e., a low or lowering r-squared value). Because in a strong trending market, prices can remain overbought or oversold for extended periods. Therefore, you may want to reconsider trading on strict overbought/oversold levels used by many indicators. An "overbought" market can remain overbought for extended periods in a trending market. However, a signal generated by a moving average crossover system may be worth following, since these systems work best in strong trending markets. To determine if the trend is statistically significant for a given x-period linear regression line, plot the r-squared indicator and refer to the following table. This table shows the values of r-squared required for a 95% confidence level at various time periods. If the r-squared value is less than the critical values shown, you should assume that prices show no statistically significant trend. Number ofPeriods r-squaredCritical Value(95%confidence) 5 0.77 10 0.40 14 0.27 20 0.20 25 0.16 30 0.13 50 0.08 60 0.06 120 0.03 You may even consider opening a short-term position opposite the prevailing trend when you observe r-squared rounding off at extreme levels. For example, if the slope is positive and r-squared is above 0.80 and begins to turn down, you may consider selling or opening a short position. There are numerous ways to use the linear regression outputs of r-squared and Slope in trading systems. For more detailed coverage, refer to the book The New Technical Trader by Tushar Chande and Stanley Kroll.

[U.F.O.]

Here are those same two charts from yesterday with today's price action.

TP, that's exactly how I've learned so many good ethnic dishes. Thai, Indian, no matter. Just point at the menu and say "DONE". (2 charts)

U.F.O.

[humble1]

since we are talking about money here with serious people, i think a response to islander's fairly made point is required. frankly, this is pretty much algebra1 or 2, i can't remember which. though math is fun and impressive, i don't remember regression analysis as being predictive, either, in a dynamic and sometimes chaotic and some say random system like the equity markets. thanks to UFO for sharing his hard work. i hope he doesn't take my remarks as being overly critical. it would certainly be dismissive to simply say nothing.

[U.F.O.]

Humble. ? Check it out and decide for yourself. Read the MetaStock description above. They seem to think the indicator has a lot of merit in determining the "trendiness" of moves.

"R-squared provides a means of quantifying the "trendiness" of prices.....There are numerous ways to use the linear regression outputs of r-squared and Slope in trading systems"

If you're looking for a Philadelphia lawyerish rebuttal of what Islander apparently thinks is a worthless trading tool, you're peeing on the wrong fire hydrant as I'm just learning this indicator myself. I'm finding a definite correlation between trend strength via R-Squared and price action. You (and Islander) may not. Shoot, I may not a month from now. I'll leave you with this. Stochastic Oscillator. Widely accepted by technicians worldwide. Here's what MetaStock has to say about the importance of establishing trend strength when using Sto's to trade OB/OS and how MS suggests one do that.

U.F.O.

"However, before basing any trade off of strict overbought/oversold levels it is recommended that you first qualify the trendiness of the market using indicators such as r-squared (see r-squared) or CMO (see Chande Momentum Oscillator). "

[traderpaul]

OK UFO, When I was little, my mom took us to a Thai resturant and she ordered 7 dishes. I took one bite ( my mouth was on fire )and did not tasted anything for two full days..... Niow tell me how to use your new pride and joy. Should I buy here?