Linear Regression Divergence Filter (LR130)

Find stocks moving in a clean, steady trend line, in real time, with Trade Ideas Streaming Alerts (Scanner) and Top Lists (Screeners). Linear Regression Divergence measures how closely a stock's price follows a straight trend line, from 0 (a perfectly straight move up or down) to 1 (no linear pattern at all).

See the cross when it happens, not on tomorrow’s chart.

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Linear Regression Divergence Filter (LR130): how it reads

Streaming Alerts check the Linear Regression Divergence filter the moment each alert fires, and Top Lists can sort by it.

How Trade Ideas finds it: set the max value to .25 to see only stocks with a strong trend line over the last 8 days. See Trade Ideas plans and pricing to run it live.

How the Linear Regression Divergence filter works

Linear regression in trading is used to identify the main trend of a stock's price over a specific period. Divergence occurs when the price of a stock moves in the opposite direction of a technical indicator or, in this case, the slope of the linear regression line. Divergence can signal a weakening trend and possible reversal.

Linear regression divergence: distance between price and its best-fit regression line

This filter tells you how well or poorly each stock’s price matches a straight line. 0 represents a stock moving up or down in a perfectly straight line. 1 represents a stock which does not move in a linear pattern at all. This filter describes a stock’s price over the previous 8 trading days. When the linear regression value falls below 0.25, it often indicates a clear trend direction—either upward or downward—over the recent 8-day period. However, when this value exceeds 0.75, the price movements become significantly more erratic and unpredictable during the same timeframe.

Key point

A stock with a low value is sometimes called a "bunny." This means that the stock has picked a direction and now keeps going and going.

This filter is what we call an overnight filter (updated during the overnight routine) and does not change during the day.

Here is an example of a chart with a linear regression divergence value of < 0.25, indicating a strong trend line in the last 8 days:

Conversely, this example shows a linear regression divergence value of > 0.75, indicating more erratic price movements in the last 8 days:

Linear Regression Divergence filter settings

Settings

The settings of each Trade Ideas filter are defined in the Window Specific Filters Tab located in the Configuration Window of your Alert or Top List (Screener) window.

Here is how to setup the filter in your configuration window:

Set the max value to .25 to see only stocks with a strong trend line over the last 8 days.

Using the Linear Regression Divergence Filter

Several trading strategies can be employed with the Linear Regression Divergence filter. Here are a few examples:

Trend Following Strategy: When the Linear Regression Value is Below 0.25: This indicates a strong, clear trend. Traders could implement a trend-following strategy, entering trades in the direction of the trend. For example, if the trend is upward, consider taking long positions on dips; if the trend is downward, consider short selling on rallies.
Reversal Trading Strategy: Anticipating Reversals at Extreme Values: Although not directly mentioned, if a stock consistently shows a linear regression value close to 0 (indicating a very strong trend), it might become overextended. Traders could look for signs of exhaustion in such trends for potential reversal trades, especially if other indicators suggest an overbought or oversold condition.
Range Trading in Erratic Markets: When the Linear Regression Value Exceeds 0.75: Since the price movement is erratic and does not follow a clear linear pattern, traders might opt for a range trading strategy. This involves identifying support and resistance levels within the price fluctuations and trading within these bounds—buying near support levels with sell orders near resistance levels.
Breakout Trading Strategy: Monitoring Transition from High to Lower Values: A stock transitioning from a linear regression value above 0.75 to below 0.25 could indicate that a previously erratic price pattern is beginning to follow a more defined trend. Traders can use this signal to enter early on potential breakout trades, positioning in the direction of the emerging trend.

Filters to combine with Linear Regression Divergence

Alerts to pair with the Linear Regression Divergence filter

FAQ

Which stocks are in a clean, steady trend?

Add the Linear Regression Divergence filter (LR130) to a Trade Ideas Streaming Alerts or Top List (Screener) window. Set the max value to .25 to see only stocks with a strong trend line over the last 8 days.

What is the Linear Regression Divergence filter?

Linear Regression Divergence measures how closely a stock's price follows a straight trend line, from 0 (a perfectly straight move up or down) to 1 (no linear pattern at all).

How do I find stocks with a strong trend line?

Use the Linear Regression Divergence filter (LR130) in Trade Ideas Streaming Alerts and Top Lists to find stocks moving in a clean, steady trend line. Linear Regression Divergence measures how closely a stock's price follows a straight trend line, from 0 (a perfectly straight move up or down) to 1 (no linear pattern at all).