November 2000

Study Tip:
Regression Techniques
by Howard Arrington

Everyone seeks a crystal ball for tomorrow's price.  If prices are trending down, a statistically good guess for tomorrow's close would be "today's close, but with a downward bias."  This is a logical assumption.  A linear regression trend line approximates this price movement by finding a 'best fit' trend line through the data.  This line is an equilibrium with an equal balance of data above the line and below the line.  A common use of a linear regression line is to construct parallel lines on either side to show the range in which prices can be expected to deviate.

The chart shows a Linear Regression line in blue applied to the Yahoo daily closes from 08-24-2000 through 11-22-2000.  The red channel lines are spaced at a distance of 12% of the linear regression price on 08-24-2000.   The slope of this 'best fit' line is down at a rate of $1.34 per day over this time period.  The slope is read from the tool's parameter form:


Ensign Windows provides another regression tool called a Regression Channel.  The channel is automatically created by applying a linear regression line to each bar on the chart to obtain a single price where the regression line intersects the last bar in the regression period.  To illustrate, this chart shows a 5-bar regression line applied to each bar on the chart, and the intersection is marked with a red circle.

The intersection prices as marked by the red circles are connected to form a regression curve, quite like a moving average curve.  Channels are created by plotting parallel curves on either side at some percentage of the price.  This study performs a tremendous amount of data manipulation, but that is why computers are used to do the task. 

Here are specific parameter settings shared by a broker using Ensign Windows, with his permission for their publication in this newsletter.  On a 3-minute chart of December ES, he uses these parameters:

On a 34-tick chart for ES0Z, he uses parameters of Pct. = 0.20, Bars = 64, and Data Point = (H+L)/2.

The trader who shared these parameters says the Regression Channel study provides quick parallel lines that keep him with the trend, and that he takes profit when the prices move outside the channel lines.

e-Mail Tip:
Include Images in e-Mail
by Howard Arrington

The process to insert an image in an e-mail is easier than most realize.   Users are encouraged to include an image of the chart they are talking about in the e-mail they send to me for customer support.   Here are a couple quick steps for including an image.

  1. In Ensign Windows, capture a full screen image to the clipboard by pressing the Print Screen key.
  2. In your e-mail program be sure the e-mail format is HTML.  I do this in Outlook Express by selecting menu Format | HTML when I create the e-mail.
  3. At the point in your e-mail where you want to insert the screen image, press  CTRL-V  to paste the clipboard image.

 If you would like to insert a smaller image instead of a full screen image, then do the following.

  1. Capture the full screen image by pressing the Print Screen key.
  2. Run the Windows Paint program.
  3. Press  CTRL-V  to paste the clipboard image into the Paint program work space.
  4. Use the dotted rectangle button to select the boundaries of a smaller image.
  5. Press  CTRL-C  to copy the selected area to the clipboard.
  6. Close the Paint program.
  7. The clipboard image can be pasted in your e-mail using  CTRL-V.

This is how I capture the images I include in this newsletter.   I do take a few additional steps while in the Paint program to save the images to my hard disk using either the GIF or the JPG file formats.

Copyright © 2008 by Ensign Software, Inc.