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2007.11.14 12:13
Indicators

R - Squared indicator - indicator for MetaTrader 4

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R-Squared shows the correlation with its linear regression line values close to 1.0 show perfect relation values close to 0.0 show poor relation.

See Metastock Help.

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.

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