Linear Regression Bands II

BarroMetrics Views: Linear Regression Bands

In yesterday’s blog, I introduced the subject. In this blog, I’ll show how I draw the bands, and show its use in the recent S&P price action.



Figure 1 shows the March 2009 low. I have overlaid two Linear Regression Bands: one marking the 18-day swing  price action (red) and on marking the 5-d swing action (blue).

What anchor points do I use for the bands?

To answer that question, let’s look at the 5-day Linear Regression Band.

  1. I place Barros Swings of theTrader Timeframe (in this case, the 5-day swing, [blue lines; weekly trend]) and the First Higher Timeframe (in this case, the 18-day swing, [red lines; monthly trend]).
  2. I start the Bands from the most recent First Higher Timeframe extreme, the 18-day swing low on July 8 low.
  3. I end it on the most recent high that will define whether the S&P price action has accepted below the lower Band.
  4. NB: I do not include all the data – just the data from the Higher Timeframe Low to the most recent defining swing high. This will be at least a 5-day (i.e. a Trader’s Timeframe swing high)


Finally notice how well the Bands warned the trader of a possible rally.

On Oct 2, the ES formed a small range day below the bottom of the band. In my free weekly video/daily forum service I warned that a rally from these levels would probably mean a challenge of the 1075 (basis Dec) high. So far this is what has transpired.

The ES has hit the minimum target, the 78.6% of the Boundaries of Congestion (see Nature of Trends). In all probability we’ll see a challenge of the highs. The one dark cloud against this are the warning patterns of a possible 18-day swing Change in Trend in the US$. If that eventuates, we’ll probably see the ES tumble.

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