R2 Trend Strategy

By Samantha Baltodano

TL;DR:

The R2 Trend strategy is a trading strategy that uses the R-Squared technical indicator to identify trending conditions. It measures the correlation between real data points and a linear regression trendline and evaluates the steepness of the trendline using Linear Regression Slope. 

The strategy triggers a buy order if the close price rises above its own moving average and a sell order when the close price falls below the average, based on the trendline slope and RSquared values meeting specific conditions.

You can access this indicator here.

What Is The R2 Trend Strategy?

The R2 Trend strategy is a trading strategy that uses the R-Squared technical indicator to identify trending conditions. 

This strategy measures the correlation between real data points, such as close prices, and the corresponding points on a linear regression trendline. 

If the correlation is higher than a certain threshold, the strategy evaluates the steepness of the trendline using Linear Regression Slope.

How the R2 Trend Strategy Works

The R2 Trend strategy begins by calculating the R2 indicator, which measures the correlation between real data points and a linear regression trendline. If the correlation is found to be higher than a certain threshold (usually 0.42), the strategy measures the steepness of the trendline using Linear Regression Slope.

If the trendline slope is greater than a certain critical value (typically 0.42), and the RSquared values are greater than both a lower threshold (typically set at 0.5) and its own prior value, this is read as an indication of a strong uptrend. 

On the other hand, if the trendline slope is less than the negative critical value and the RSquared values meet the same conditions, this indicates a strong downtrend.

Based on these conditions, the R2 Trend strategy triggers a buy order if the close price rises above its own moving average. Conversely, a sell order is added when the close price falls below the average.

Using the R2 Trend Strategy in Trading

The R2 Trend strategy is designed to identify strong uptrends and downtrends, making it useful for traders who want to take advantage of these trends. By using the R2 indicator and other tools, the strategy can provide insights into when to buy and sell stocks, commodities, or other assets.

However, it's important to note that the R2 Trend strategy is not foolproof and should be used in conjunction with other tools and strategies. Traders should also keep in mind that past performance is not indicative of future results, and that trading always carries a certain level of risk.

Test The R2 Trend Strategy

Great news! 

You can back test this exact strategy on historical data for any of your favorite symbols using TradingView. 

This strategy has already been built and all you have to do is log in and take it for a spin. You can access this indicator here.

If you’re new to back testing and to TradingView, don’t worry. I created a step-by-step guide you can follow to begin testing the R2 Trend Strategy.

Summary

• The R2 Trend strategy is a trading strategy that uses the R-Squared technical indicator to identify trending conditions.
• The strategy measures the correlation between real data points and a linear regression trendline, and evaluates the steepness of the trendline using Linear Regression Slope.
• If the trendline slope is greater than a certain critical value and the RSquared values meet specific conditions, this indicates a strong uptrend or downtrend.
• The R2 Trend strategy triggers buy or sell orders based on these conditions.
• Traders can use the R2 Trend strategy to identify strong trends in stocks, commodities, or other assets, but should use it in conjunction with other tools and strategies, and be aware of the risks associated with trading.

R2 Trend is just one of many strategies that Archaide automates. For a full list of strategies and studies available click here.

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