Anderson Regression Line Stretch for Statistical Price Reversion

Summary

The Anderson Regression Line Stretch (ARLS) is an oscillator measuring the percentage gap between the current price and its 30-period linear regression line. It plots the oscillator against positive and negative bands at two and three standard deviations, calculated over a configurable lookback. The author treats unusually large readings as prompts to inspect price action and the broader trend, rather than as standalone entry signals.

After a prolonged rise or fall, a move beyond the two-standard-deviation band may indicate a possible reversion toward the regression line. Alternatively, price may stabilize while the line catches up. The post recommends adding context from measures such as ATR multiples and Bollinger Bands, and notes that the chart needs enough historical bars for the deviation calculation. It offers no backtest or quantified evidence that reversions occur reliably; the bands identify unusual distances, not guaranteed turning points.

Key ideas

• ARLS expresses the price distance from a 30-period linear regression line as a percentage of price.
• The indicator uses two- and three-standard-deviation bands to flag unusually large stretches.
• Extreme readings are intended to prompt contextual review, including the prevailing trend.
• Possible outcomes include price returning to the regression line or the line catching up as price stabilizes.
• The author suggests using ATR and Bollinger Bands for additional context, but provides no performance validation.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.