The Linear Regression Channel plots a trend’s central line and price bands, helping commodity traders spot direction, measure volatility, and identify potential support and resistance.
This page is about the linear regression channel. If you are interested in the linear regression curve or linear regression line, select the links below:
What Is a Linear Regression Channel?
Linear regression channels are quite useful technical analysis charting tools. In addition to identifying trends and trend direction, the use of standard deviation gives traders ideas as to when prices are becoming overbought or oversold relative to the long-term trend.
Similar to the 200-day moving average, large institutions often look at long-term linear regression channels. A linear regression channel consists of three parts:
- Linear Regression Line – A line that best fits all the data points of interest.
- Upper Channel Line – A line that runs parallel to the Linear Regression Line and is usually one to two standard deviations above the Linear Regression Line.
- Lower Channel Line – This line runs parallel to the Linear Regression Line and is usually one to two standard deviations below the Linear Regression Line.
How to Interpret the Linear Regression Channel
This multi-year chart of the S&P 500 exchange-traded fund (SPY) shows prices in a steady uptrend and maintains a tight one-standard-deviation linear regression channel.
The upper and lower channel lines contain between them either 68% of all prices (if 1 standard deviation is used) or 95% of all prices (if 2 standard deviations are used).
When prices break outside of the channels, either:
- Buy or sell opportunities are present.
- Or the prior trend could be ending.
Possible Buy Signal
When the price falls below the lower channel line and a trader expects a continuation of the trend, it might be considered a buy signal.
Possible Sell Signal
An opportunity to sell might occur when prices break above the upper channel line, but the trader expects the trend to continue.
Other confirmation signs, such as prices closing back inside the linear regression channel, might be used to initiate potential buy or sell orders. Also, other technical indicators might be used to confirm.
Trend Reversals
When the price closes outside of the linear regression channel for long periods of time, this is often interpreted as an early signal that the past price trend may be breaking and a significant reversal might be near.
Where to Trade Commodities Using Technical Analysis
Further Reading on Trend Indicators
These trend tools complement Linear Regression Channel: Andrew’s Pitchfork, Gann Fans, and Typical Price Moving Average.
Technical analysis is most widely used in CFD and forex trading. If you’re ready to apply these techniques, browse our vetted CFD brokers or forex brokers.
Update history
This page was revised 4 times between August 2020 and April 2026.
Added promotional links to CFD and forex broker listings in Further Reading section.
Streamlined Further Reading section by removing dated broker reviews and general trading guides, replacing them with focused recommendations for complementary trend indicator tools.
Restructured content with table of contents, added disclaimer notation, separated buy/sell signal sections with headings, replaced "How to Get Started Trading" section with "Where to Trade Commodities" section, standardized capitalization, and streamlined list formatting throughout.
Added three new sections on buy signals, sell signals, and trend reversals with practical trading guidance, while restructuring the definitions list for improved readability.
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