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.