|Linear Regression R-Squared|
The Linear Regression R-Squared function determines the extent of a linear relationship of a field to time over a given period of time R-squared shows the strength of trend. The more closely prices move in a linear relationship with the passing of time, the stronger the trend.
R-squared values show the percentage of movement that can be explained by linear regression. For example, if the r-squared value over 20 period is at 70%, this means that 70% of the movement of the instrument is explained by linear regression. The other 30% is unexplained random noise.
One of the most useful ways to use r-squared is as a confirming indicator. Momentum based indicators (e.g., Stochastics, RSI, CCI, etc.) and moving average systems require a confirmation of trend in order to be consistently effective. R-squared provides a means of quantifying the trend of prices.