raff regression channel trading strategy

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Raff Regression Channel

Presentation

Developed aside Gilbert Raff, the Raff Regression Channel is a linear regression with evenly spaced trend lines above and below. The width of the channel is based on the high operating room low that is the furthest from the rectilinear regression. The trend is up as long as prices rise within this channelize. An uptrend reverses when price breaks below the channel extension. The trend is down equally long American Samoa prices decline within the channel. Likewise, a downtrend reverses when price breaks to a higher place the channel extension.

Formula

The Raff Regression Channel (RRC) is based happening a rectilinear regression, which is the least-squares line-of-prizewinning-fit for a price serial. Even though the formula is on the far side the scope of this article, linear regressions are easy to understand with a visual example. Chart 1 shows the Nasdaq 100 ETF (QQQQ) with the Raff Regression Channel in red. The midsection line of reasoning is the linear simple regression extending from the July closing low to the January closing high. Note that the linear regression is settled on closing prices. This makes the linear regress the line-of-best-fit for the closing prices from the July low to the January high. Next, the width is set by determining the high or low that is the furthest from the linear infantile fixation (early July to mid-January). Therein case, the next day's low is the furthermost and is used to set the lower channelise trend line. The superior trend line is then set the synoptical distance from the linear regression as the turn down trend line.

Chart 1 - Raff Regression Channel

Graph 2 shows an example of QQQQ in a downtrend. The Raff Regression Channel extends from the Apr (closing) shrill to the July (closure) low. The of late June drunk defines the width of the channel because information technology is the farthest high OR low from the analog retroversion. This way the lower trend line is set the same distance from the linear regression as the upper trend line.

Chart 2 - Raff Regression Channel

Drawing and Signals

The Raff Regression Channel can be drawn to cover the existing tendency and subsequently define the trend. Once established, extension lines stool be drawn to identify the support, resistance or reversal points. An uptrend extends from the lowest close low to the highest closedown high for a move. A downtrend extends from the highest closing high to the lowest closing unrefined. Keep in head that closing prices are used when drawing the Raff Regression Channel, but intraday highs and lows are accustomed set the television channel trend lines.

Chart 3 shows Urban Outfitters (URBN) with the Raff Regression Channel raddled from the July 2007 low to the Sep 2008 high (weekly closes). This covers the uptrend so far. Had URBN moved to a new closing high in October, the Raff Regression Channel would have extended to that high. Instead, URBN broke below the regression channel extension to reverse the uptrend. Notice that the lower vogue line was outspread to extrapolate the canal.

Chart 3 - Raff Regression Channel

Graph 4 shows Nvidia (NVDA) with a downtrend extending from the October 2007 up to the November 2008 low. The Raff Regression Channel did not pass further because the stock traded categorical and held above its November abject into 2009. The red ink dotted line shows the TV channel extension of the regression channel top. NVDA broke this extension in February-March to bulge an uptrend.

Chart 4 - Raff Regression Channel

Decision

American Samoa a channel based on a rectilinear regression, the Raff Infantile fixation Channel is well clothed for movement designation. The width of the transmit depends connected the furthest high or Sir David Low from the linear regression. As such, spike highs and lows will resolution in very wide-eyed channels that may non capture the true range. When an uptrend starts with a sharp surge, the low that follows this initial soar is often the furthest alto-low from the linear regression. By extension, when a downtrend starts with a sharp decline, the high of this initial decline is often the furthest high-low from the linear arrested development. Sharp initial moves create comprehensive channels with few, if any, reaction highs or lows touching the upper and lower trend lines. Much was the case with the surge off of the March 2009 lows (see the QQQQ chart further below). Equal though this article only focused on trend identification, the Raff Regression Channel can be drawn early in the trend and extended to prefigure future support or resistance levels as healed as overbought or oversold levels. Channel extensions can act support or resistance. Moves outside the channel extensions lav also denote overbought or oversold conditions.

Using with SharpCharts

You can use our ChartNotes annotation tool to add Raff Fixation Channels to your charts. Below, you'll find an example of a chart annotated with two Raff Reversion Channel annotations.

Chart 5 - Raff Regression Channel

To memorize to a greater extent about how to add this notation to your charts, check out our Support Center article on ChartNotes' Transmission line Study Tools.

raff regression channel trading strategy

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