Time Period

Specify a time period. Linear regression works on any time scale. This means that you can use linear regression on an intraday, daily, weekly or monthly chart. Use the longer-term charts to plan long-term trades and use the shorter-term charts to plan short-term trades.

Standard Deviations

Calculate two standard deviations from the best fit line. Plot these lines parallel to the best fit line on either side to form a channel. These lines provide entry and exit signals. Also, if the price breaks through either end of the channel, it could be a sign of a change in trend.

Spotting Signals

If the price reacts off of a standard deviation level, this is often a signal to enter a trade. If the price reacts off the bottom of the channel, this indicates a buy signal. If the price retracts from the top of the channel, this indicates a sell signal. The first standard deviation line may be used, however, a more conservative approach is to use both standard deviation lines. In this approach, the trader waits for the price to react off of the second standard deviation line and then enters a trade when the price crosses the first standard deviation line.

Stop Loss

References

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