Traders who use chart patterns to trade should consider adding the Time Series Forecast
indicator to their trading arsenal. In order to use chart pattern effectively, one
essentially has to believe that historical price behaviour can be used to forecast
future price movements. This is the same premise that the Times Series Forecast
(TSF) indicator is built upon. The TSF is based upon a regression based forecast
model to predict future price action based on known past events before they are
Step One: Calculate the Time Series Forecast using least squares fit regression
Step Two: Calculate time series moving average; fit a linear regression line over
the values for the given period, and then determine the current value for that line.
The individual points are then connected together with a line to form a time series
moving average. A linear regression line is a straight line, which is as close to
all of the given values as possible.
The TSF indicator attempts to fit a trend line to the price data by minimising the
distance between the price points and the linear regression trend line itself.
The Time Series Forecast is interpreted in the same way as other moving averages.
Therefore the TFS indicator is useful for smoothing noise out of the price movements.
As with the analysis of moving averages traders can gain a general idea of where
the underlying trend is headed.
The Time Series Forecast formula creates a visual display of the statistical trend
of the price of a stock over a specified time period. Where the simple moving average
is the trend of historical closing prices for a time period, the TFS is the trend
of stock prices based on linear regression of closing prices. Instead of creating
a straight linear regression trend line, the TSF plots the last point of multiple
linear regression trend lines. The TSF indicator will also factor in the slope of
the trend, which makes TSF more responsive to trends changes.
Trader will interpreted the TSF indicator just like moving averages. Where the most
basic interpretation is if price stays above the indicator, then this is a bullish
trend and when the price stays below then this is bearish trend. Buy and Sell signals
are triggered when price movements cross the Time Series Forecast line.