BackExtended Regression StopAndReverse Indicator

Once activated, this indicator automatically determines a time frame, calculated two types of regression on the current time frame and also mean square price deviation within a given diapason. The straight golden line is of primary importance. It symbolizes regression of the first type and shows a direction and state of the current trend at a certain time frame. Apparently, the wider an angle between this line and the horizontal is the stronger a trend is. Thus, we can judge about the state of a given currency pair by a position of the price in relation to the regression line. For example, let us consider the most common case: if the price is under an uprising line, then a small-scale correction has just finished and so the price may well be expected to go over the regression line within the trend. There are mutually parallel lines of support and resistance in the region of the golden line. They are below the trend line. These are actual threshold levels, as they are based on a value of the mean square deviation at a given diapason with a corresponding Fibonacci coefficient. Using a mean square deviation and corresponding Fibonacci coefficients, the indicator calculates values of stop and stop/reverse levels for the current price. These levels can be interpreted as instant deviation values at a time frame of the latest bar. These values are shown with multicoloured dots higher or lower than the price in accordance with the currency pair state. Dots tinted blue are depicted to be below the price with lighter ones signifying stop and darker ones – stop and reverse. Red dots are over the price; these show stop and reverse levels. The indicator shows just two values of the price at any bar, not all the four of them. On this basis you can make out what the present price state is being. It should be kept in mind that once a stop level or both of them are broken with the price going beyond the corresponding level the indicator provides instant values reversed. In other words, in case before breaking through these were resistance levels, the indicator depicts immediate support levels. It means that a reverse signifies a short-term switch of the trend to a small-scale correction. The regression coefficient represents the ground for calculating and displaying a corresponding nonlinear channel, necessary for further forecasts in the short run and acting like a linear channel, which means that it shows the actual support and resistance level, dynamically changing as time passes by in a nonlinear manner. A parabolic regression coefficient of 2 is set by default. The data provided by the indicator is easy to interpret. -For instance, nonlinear regression channel curves and crosses the golden line of an uprising trend from top downward. This is a sign of weakening, suggestive of coming correction if not a trend change. It is vice versa with a declining trend. You should switch to bigger and smaller time frames and assess the situation with them. The price crossing support and resistance lines: -In case the price spiked beyond the resistance level at uptrend, it is quite likely to retrieve to the channel again, which should be in no way regarded as a signal to close the orders. If however the price bounces over the support level at uptrend, there are sufficient grounds to expect considerable correction, in case it breaks through both stop/reverse levels. To perfectly comprehend the situation you should take into consideration a state of the golden trend line and the data provided by neighbouring time frames. At downtrend the situation is vice versa. All channels are recalculated, updated and redepicted with each bar depending on the current market conditions. Despite complicated mathematic aspects of the indicator, it does not require exceptional software resources. Entry parameters: _RegressionDegree – a degree of nonlinear regression; efficient values are 2 and 3. _K_DeviationChannel – a multiplier for deviation (not a Fibonacci coefficient!); it allows setting a multiplier for deviation; 2 is a recommended value, yet some will prefer 3).

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Forex Analysis