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R - Squared indicator 2018-11-20

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R-Squared shows the correlation with its linear regression line values close to 1.0 show perfect relation values close to 0.0 show poor relation.

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To determine if the trend is statistically significant for a given x-period linear regression line, plot the r-squared indicator and refer to the following table. This table shows the values of r-squared required for a 95% confidence level at various time periods. If the r-squared value is less than the critical values shown, you should assume that prices show no statistically significant trend.
Number ofPeriods r-squaredCritical Value(95%confidence):
5 0.77
10 0.40
14 0.27
20 0.20
25 0.16
30 0.13
50 0.08
60 0.06
120 0.03

You may even consider opening a short-term position opposite the prevailing trend when you observe r-squared rounding off at extreme levels. For example, if the slope is positive and r-squared is above 0.80 and begins to turn down, you may consider selling or opening a short position.
There are numerous ways to use the linear regression outputs of r-squared and Slope in trading systems. For more detailed coverage, refer to the book The New Technical Trader by Tushar Chande and Stanley Kroll.
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