Linear Regression Channels

A technical indicator used to determine the trend a security is developing and the likely price range that will take place within that trend. The channel is created using a price history chart and consists of an upper line, a middle line, and a lower line. The upper channel line is created by connecting a series of recent high price points in a straight line, the middle line by connecting intermediate highs and lows, and the lower channel line by connecting a series of low price points.

Primarily the top of a channel line tends to act as a resistance level much like a moving average might. When the stock hits the upper line, it usually moves down or "regresses" to the lower or middle line. Consequently, the lower end of the channel tends to act as support. The middle line acts as a median, giving a central point to watch how the stock reacts - does it tend to gravitate more towards the lower line or the upper line of the channel?

The channel provides a picture of the overall trend of a stock, whether it is in an uptrend, downtrend, or just consolidating.



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