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Strategies & Market Trends : Ask Vendit Off-Topic Questions

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To: Gersh Avery who wrote (5413)	2/26/2005 4:35:29 PM
From: Vendit™	Read Replies (1) of 8752

Gersh Re: It seems to me that the entire set of 128 bars would produce the slope of the median line. In addition, the width of the channel seems to be a representation of deviation from norm about that median line. First the center line is drawn using the “Least Squares Method”. The least squares parameter estimation method is a variation of the probability plotting methodology in which you would mathematically fit a straight line to a set of points in an attempt to estimate the parameters. See this simple chart: themarketwind.com The method of least squares requires that a straight line be fitted to a set of data points such that the sum of the squares of the vertical deviations from the points to the line is minimized, if the regression is on Y, or the line be fitted to a set of data points such that the sum of the squares of the horizontal deviations from the points to the line is minimized, if the regression is on X. The regression on Y is not necessarily the same as the regression on X. The only time when the two regressions are the same (i.e. will yield the same equation for a line) is when the data be positioned perfectly on a line. Once that line is in place then the two outer regression lines are draw an equal distance from the center regression line. The outer lines should be placed at common candle points along the way to form the two parallel lines or channels. These lines act as support and resistance. The space between the parallel lines is where equilibrium exists and if the stock price moves to one of the channels, prices will usually move back to center or the opposite channel line while a major breach of either line on volume, would indicate a breakout is occurring. 139.142.147.218 Reid

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