The LRC Indicator

LRC stands for Linear Regression Channel. The TTM LRC is designed as a trend-identifying reversion to the mean indicator. Based on the short-term trend of the market, lines are created at 1 and 2 standard deviations outside of the current price based on a 35-period average.

The middle line (grey in the picture below) is the linear regression line that best fits all the data points of interest for the period. The upper and lower channel lines (red and purple in the picture below) run parallel to the linear regression line by one and two standard deviations. The inner channel represents one standard deviation and contains 68.2% of price data. The outer channel is two standard deviations away and comprises 95% of all prices for the designated period.

LRC

The LRC is a dynamic indicator. It is not static. As price action changes, the linear regression lines will automatically adjust and the channel will become up trending, down trending, or sideways depending on current market conditions.

LRC 2

This indicator does not plot “signals” in the traditional sense. Instead we interpret price action below the lower regression channel as a buy zone and prices above the upper channel as a selling opportunity. The goal is to fade these extremes and look for the market to return to the linear regression line, i.e. the mean, and potentially to the other side of the channel.

In the example above, there is a short-term downtrend in place. Therefore traders would treat prices above the upper red channel lines as sell areas and look for a return to the mean and potentially a test of the lower side of the channel. If given a margin on the chart, the LRC lines will also extend past current price action, making it easier to pre-position targets.

This indicator can be applied to any market on any time frame. It can be a valuable tool for swing trading as well as intraday.

The LRC indicator is available for the following trading platforms:

  • ThinkorSwim
  • Tradestation
  • Ninjatrader
  • Trade Navigator
  • eSignal
  • Multicharts