In this guide to understanding the Time Series Forecast, we’ll show you what this chart looks like and teach you how to interpret it.
What Is the Time Series Forecast?
The Time Series Forecast uses Linear Regression to calculate a best-fit line over a designated time period. This line is then plotted forward for a user-defined time period.
What Does the Time Series Forecast Look Like?
The chart below of the mini-Dow Futures contract shows the Time Series Forecast indicator plotted forward for 7 days:
How to Interpret the Time Series Forecast
Generally, traders might expect price to return back to the Time Series Forecast line when prices have strayed.
Therefore, a vague potential buy signal could occur when price is below the line and a potential sell signal could occur when price is far above the line.
However, how far price needs to vary from the line is very subjective.
A similar, and arguably superior technical indicator, is the Linear Regression Curve.
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Below we answer some common questions about Time Series Forecast indicators.
What is the difference between time series forecasting and regression analysis?
The main difference between these two analysis types is that time series is extrapolation and regression is interpolation. A time series forecasts takes previous data points and uses a mathematical model to predict future events. A regression analysis attempts to explain mathematically what happened between two or more data points. Regression can then attempt to predict future data points based on that model.
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