alexgrover

Optimized Linear Regression Channel

Return a linear regression channel with a window size within the range (min, max) such that the R-squared is maximized, this allows a better estimate of an underlying linear trend, a better detection of significant historical supports and resistance points, and avoid finding a good window size manually.

Settings

  • Min : Minimum window size value
  • Max : Maximum window size value
  • Mult : Multiplicative factor for the rmse, control the channel width.
  • Src : Source input of the indicator

Details

The indicator displays the specific window size that maximizes the R-squared at the bottom of the lower channel.


When optimizing we want to find parameters such that they maximize or minimize a certain function, here the r-squared . The R-squared is given by 1 minus the ratio between the sum of squares ( SSE ) of the linear regression and the sum of squares of the mean. We know that the mean will always produce an SSE greater or equal to the one of the linear regression , so the R-squared will always be in a (0,1) range. In the case our data has a linear trend, the linear regression will have a better fit, thus having a lower SSE than the SSE of the mean, has such the ratio between the linear regression SSE and the mean SSE will be low, 1 minus this ratio will return a greater result. A lower R-squared will tell you that your linear regression produces a fit similar to the one produced by the mean. The R-squared is also given by the square of the correlation coefficient between the dependent and independent variables.



In pinescript optimization can be done by running a function inside a loop, we run the function for each setting and keep the one that produces the maximum or minimum result, however, it is not possible to do that with most built-in functions, including the function of interest, correlation, as such we must recreate a rolling correlation function that can be used inside loops, such functions are generally loops-free, this means that they are not computed using a loop in the first place, fortunately, the rolling correlation function is simply based on moving averages and standard deviations, both can be computed without using a loop by using cumulative sums, this is what is done in the code.

Note that because the R-squared is based on the SSE of the linear regression , maximizing the R-squared also minimizes the linear regression SSE , another thing that is minimized is the horizontality of the fit.


In the example above we have a total window size of 27, the script will try to find the setting that maximizes the R-squared , we must avoid every data points before the volatile bearish candle, using any of these data points will produce a poor fit, we see that the script avoid it, thus running as expected. Another interesting thing is that the best R-squared is not always associated to the lowest window size.


Note that optimization does not fix core problems in a model, with the linear regression we assume that our data set posses a linear trend, if it's not the case, then no matter how many settings you use you will still have a model that is not adapted to your data.
Gỡ bỏ khỏi Script Ưa thích Thêm vào Script Ưa thích
Patreon: https://www.patreon.com/alexgrover

Become a Patreon and get access to exclusive technical indicators!

You can also check out some of the indicators I made for luxalgo : https://www.tradingview.com/u/LuxAlgo/#published-scripts

Bình luận

Great indicator! Guys, any idea how to make an alert for the change of direction of those 3 lines?
Thanks!
+3 Phản hồi
joan241 mariuspe
@mariuspe, Indeed, and alert for the change of direction can be nice.
Phản hồi
This is the best regression channel script so far, thanks @alexgrover !
but why sometimes it gave Study Error negative index -1 ?
+1 Phản hồi
alexgrover MasBart
@MasBart, Thanks for reporting the problem, I will fix this :)
Phản hồi
MasBart alexgrover
@alexgrover, you're welcome.
Phản hồi
Thanks again, Alex.
+1 Phản hồi
That very nice item; thank you so much Alex <3
+1 Phản hồi
Great!! Thanks Alex!
+1 Phản hồi
Fantastic!!! Thank you!
+1 Phản hồi
It would be nice if the R-squared was also written out, so you knew if it was "maximized" to .68 :) Other then that, nice script.
Phản hồi
Trang chủ Bộ lọc cổ phiếu Bộ lọc Forex Bộ lọc Tiền điện tử Lịch kinh tế Cách thức hoạt động Tính năng Biểu đồ Trả phí Giới thiệu bạn Quy tắc Áp dụng Trung tâm Trợ giúp Giải pháp cho Website & Nhà môi giới Widget Giải pháp biểu đồ Thư viện Biểu đồ Lightweight Blog & Tin tức Twitter
Hồ sơ Tùy chỉnh Hồ sơ Tài khoản và Thanh toán Giới thiệu bạn Xu Ticket Hỗ trợ của tôi Trung tâm Trợ giúp Các ý tưởng đã đăng Người theo dõi Đang theo dõi Tin nhắn riêng Trò chuyện Đăng xuất