Regression Channel with Variable Polynomial Degree Indicator for MT4

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Regression Channel with Variable Polynomial Degree Indicator for MT4

Introduction to the Regression Channel with Variable Polynomial Degree Indicator

Price often moves within channels as it trends up or down. Seasoned traders try to trade reversals developing on the edge of these channels knowing that price would often revert back to its mean or swing in the opposite direction. However, since price is dynamic, these channels do not move in a straight line at times. This indicator was developed to help traders identify such dynamic channels.

What is the Regression Channel with Variable Polynomial Degree Indicator?

The Regression Channel with Variable Polynomial Degree Indicator is a custom technical indicator which is based on the concept of the Regression Line. However, unlike the regular Regression Line, which is an equidistant channel, the Regression Channel with Variable Polynomial Degree Indicator plots a dynamic regression channel. This means that the channel it plots is not a straight line but a line that bends along with the direction of price action. This creates a channel like structure which bends smoothly with price.

Regression Channel with Variable Polynomial Degree Indicator for MT4

How the Regression Channel with Variable Polynomial Degree Indicator Works?

The Regression Channel with Variable Polynomial Degree Indicator uses a complex mathematical formula to arrive at the slope and distance of the channel. Since the indicator recalculates on each bar, the slope of the lines changes allowing the lines to bend based on the direction of price action.

How to use the Regression Channel with Variable Polynomial Degree Indicator for MT4

This indicator has several variables which users can use to adjust the sensitivity and characteristics of the indicator.

“Degree” refers to the sensitivity of the indicator in which its slope would react to price fluctuations.

“kstd” refers to the standard deviation in which the outer lines of the channel would deviate from the middle line.

“bars” refers to the number of historical bars in which the indicator would start computing.

“shift” allows users to shift the channel forward or back.

How the Regression Channel with Variable Polynomial Degree Indicator Works

This indicator can be used to identify overbought and oversold price levels based on where price is in relation to the outer lines of the channel. The area above the upper line is indicative of overbought price levels, while the area below the lower line is indicative of oversold price levels. Price has the tendency to reverse towards the mean as price reaches these levels. At times, price may also swing to the opposite end of the channel.

Buy Trade Setup

When to Enter?

Open a buy order on the confluence of a bullish reversal price action developing on the lower line of the channel. Set the stop loss on the support below the entry candle.

When to Exit?

Close the trade as price reaches either the middle line or the upper line of the channel.

How to use the Regression Channel with Variable Polynomial Degree Indicator for MT4 - Buy Trade

Sell Trade Setup

When to Enter?

Open sell order on the confluence of a bearish reversal price action developing on the upper line of the channel. Set the stop loss on the resistance above the entry candle.

When to Exit?

Close the trade as price reaches either the middle line or the lower line of the channel.

How to use the Regression Channel with Variable Polynomial Degree Indicator for MT4 - Sell Trade

Conclusion

This indicator is an excellent indicator for identifying mean reversal trade setups developing in markets with very wide price swings. Price does tend to reverse whenever it touches the outer lines of the channel. Combined with price action, this indicator can be a very effective tool for trading mean reversals.

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Regression Channel with Variable Polynomial Degree Indicator for MT4

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