22 replies to this topic

[U.F.O.]

I've been playing around with the indicator R-Squared for over a year and think I've developed a better handle on using it. Indicator rising = strengthening trend, indicator falling = weakening trend. We just started a strengthening move but in which direction? R-Squared used in conjunction with Linear Regression Slope says up. (2 charts)

U.F.O.

[eminimee]

If the oex can break free above that neckline then I'm with ya on the up side. If not I can target 517,500, 470 on the downside. And since financials make up over 26% of oex at this point in time, I'll throw in 2 more charts. Not being a bear as I'm flat indices. Just looking at weekly's..............man, I don't like what I see. But that could change in a heart beat I guess if sentiment turns ugly quickly. Tell me honestly, would you feel comfortable against these charts being long? Besides a short scalp of course. Which way would the trend favour at this point in time?
http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$oex,uu[w,a]waclyiay[dd][pc4!c8!c40!c10!c20!f][vc60][iut!ub14!la5,34,5!ld20!lg!lp14,3,3][j26990866,y]&r=7063.gif

http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$xbd,uu[w,a]waclyiay[d20030701,20041231][pb200!b100!b50!d20,2!c40!f][vc60][iut!ub17!la5,34,5!ld20!lg!lp14,3,3][j28947893,y]&r=9559.gif

http://stockcharts.com/def/servlet/SharpChartv05.ServletDriver?chart=$bkx,uu[w,a]waclyiay[d20030301,20041231][pd20,2!c40!c10!c20!f][vc60][iut!ub17!la5,34,5!ld20!lg!lp14,3,3][j33978581,y]&r=2813.gif

[thoughtpwr]

What is R-Squared measuring? Thanks, I am looking for confirmation of my own analysis. Thx, EJ

[jmicou]

Here's another view using a DecisionPoint chart. The 20/50 EMAs that are both curving up have, yet to make the bull cross, but bounced off of the 200 EMA. Nice, tight triangle, too.

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

[btreehouse]

UFO, This type of post is what I consider the best side of FF. Thanks,

[eminimee]

I guess I'm just a meat and potatoes guy 'cause I just don't understand. UFO, Treehouse, anyone, if you have time, could you explain just the basics of what is implied? Muchly appreciated from the Great (and obviously naive) White North.

[Cycle Analytics]

Thoughtpwr wrote:

What is R-Squared measuring? Thanks, I am looking for confirmation of my own analysis. Thx, EJ

Goodness of fit... R^2 measures how well the regression equation fits the data in the look back window.

Regression analysis is a statistical method for fitting and equation to (typically) measured data. The most common equation being fit is a line y = mx + b athough it could be a polynomial, power function, sine wave etc. For a line, given a set of at least two (x,y) data points, using (typically) least squares regression you can find the two unknowns: m (slope) and b (intercept). "Least squares" implies choosing (calculating actually) m and b such that the sum of the squares of the deviations: (actual value (i.e. measured) minus equation predicted)^2 are minimized.

So whats R^2? is a measure of the "goodness of fit" for the solution found by the method of least squares. Its a number that ranges between 1 (a perfect fit... perfect correlation) and zero (a terrible fit no correlation). The other thing UFO is showing is the slope of the regression: m. If its positive, prices (in the window used to determine the equation) are trending up. It its negative, prices ( in the window used to determine the equation) are trending down.

Lest think about this for a minute... the results are highly dependent on what "look back" window is choosen. Lets say price was cycling in a perfect sine wave and you had your regression set to the exact number of bars in the cycle. What would happen? The slope (m) would stay constant ... zero and the correlation coefficient r^2 would stay the same something less than 1 meanwhile price would be swinging above and below the line defined by the regression equation. Potentially profitable trades would be missed.

Another statistical method I like better is Pearson's Rank Correlation. It makes for a very smooth yet responsive momentum measure. To each his/her own.

[OEXCHAOS]

Post of the Week...maybe the month.

[jmicou]

Really nice post, UFO.

For those who don't have LR charting access, PC Quotes does have a linear regression channel setting. It is usefull for Fib levels, too. Otherwise, it's not in the same ballpark as StockCharts.

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

[kamakazeman]

Here's another view using a DecisionPoint chart. The 20/50 EMAs that are both curving up have, yet to make the bull cross, but bounced off of the 200 EMA. Nice, tight triangle, too.

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

jmicou -

Interesting Chart!
Whut dost thou make of the MACD and CCI studies on the chart?