Home > Technical analysis > Indicators and oscillators > R-Squared (R2)

R-Squared (R2)

The Linear Regression Trend line approximates real data's pointer could be well described by the R-Squared or R2 indicator. A perfect fit is observed, when an R-Squared is on 1.0 point. However, when the R-Squared goes lower than 1.0 point, it means that there are no relationships between the price and the Linear Regression Trend line.

Number of Periods R-Squared Critical 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

When R-Squared rounds off at extreme levels, a Short-term position could be considered opening opposite the prevailing trend. For example, a Short position could be regarded selling or opening, when the slope is positive and 0.80 point is overcame by R-squared then it starts to turn down.

You may find a lot of ways to use the linear regression outputs of R-squared and Slope in trading systems. If you need more information about the R- Squared, read it in the book The New Technical Trader written by Stanley Kroll and Tushar Chande.