The Least Square Moving Average (LSMA) indicator is also referred to as the endpoint moving average. LSMA focuses on the preceding time periods from the current period using the least line square regression line.
LSMA brings about the picture of what would BE experienced if the regression line is continued. Here, traders are able to get their answers about trend tracking & trend analysis. using LSMA, traders are able to gather helpful insights during the decision-making process on when to buy or sell in a market.
Features of LSMA indicator
• Apply the use of the regression line
• It’s based on the least square system
• It aims at projecting the value of the market if the trend persists
• Focuses on the preceding time periods
Calculation of LSMA indicator
In the derivation of the formula, the sum of least squares is used in coming up with a straight line meaning best fit data is used. The endpoint of the line is drawn, but it doesn’t stop there; the process is continued for every preceding period. (Play around with tradingview’s advanced charts for free).
b = ( nxy – xy ) / ( nx2 – (x)2 )
a = ( y – bx ) / n
Note:
n= number of data points selected
y= price value
x= date
a= constant (when x = 0)
b= gradient
Understanding the LSMA indicator
Understanding how the LSMA chart works is very critical when making a trading decision on whether to buy or sell in a market. LSMA helps you to know a bullish or a bearish trend in the market. Always note that it’s not always 100 guaranteed that the signal is accurate.
Least Squares Moving Average Indicator | Indicator Series Click To TweetUsing the LSMA indicator
You may opt to buy when the signal shows an uptrend, and the price remains over it and then increases. Conversely, you may opt to sell when the indicator line is moving down with the prices moving down below it and then decreases.
Additionally, you can decide to add another LSMA but now with different periods. The signals will be produced on their crossovers, and the decision will be made on the trend direction.
Key Take-Away
There exist many types of moving averages, one of them being the LSMA indicator. Using appropriate indicators can be very helpful in making trade decisions at the same time; it’s always important to understand that there is no single indicator that is perfect, and sometimes a false signal may be generated.
Always be cautious and add an extra method of confirming a signal. For more insights about indicators and other trading insights, subscribe to tradingview.com and join other traders in the discussion.