Autocorrelation Price Forecasting [The Quant Science]

Discover how to predict future price movements using autocorrelation and linear regression models to identify potential trading opportunities.

An advanced model to predict future price movements using autocorrelation and linear regression. This script helps identify recurring market cycles and calculates potential gains, with clear visual signals for quick and informed decisions.


Main function
This script leverages an autocorrelation model to estimate the future price of an asset based on historical price relationships. It also integrates linear regression on percentage returns to provide more accurate predictions of price movements.

Insights types
1) Red label on a green candle: Bearish forecast and swing trading opportunity.

2) Red label on a red candle: Bearish forecast and trend-following opportunity.

3) Green label on a red candle: Bullish forecast and swing trading opportunity.

4) Green label on a green candle: Bullish forecast and trend-following opportunity.


IMPORTANT!
The indicator displays a future price forecast. When negative, it estimates a future price drop.
When positive, it estimates a future price increase.

Key Features
Customizable inputs

• Analysis Length: number of historical bars used for autocorrelation calculation. Adjustable between 1 and 200.
  
• Forecast Colors: customize colors for bullish and bearish signals.
  

Visual insights

• Labels: hypothetical gains or losses are displayed as labels above or below the bars.
  
• Dynamic coloring: bullish (green) and bearish (red) signals are highlighted directly on the chart.
  
• Forecast line: A continuous line is plotted to represent the estimated future price values.
  

Practical applications

• Short-term Trading: identify repetitive market cycles to anticipate future movements.
  
• Visual Decision-making: colored signals and labels make it easier to visualize potential profit or loss for each trade.
  
• Advanced Customization: adjust the data length and colors to tailor the indicator to your strategies.
  

Limitations
Prediction price models have some limitations. Trading decisions should be made with caution, considering additional market factors and risk management strategies.