Trading Moving-Average Channel Bounces with Linear Regression Slope

Summary

This strategy adapts Larry Williams’ three-bar approach to trade pullbacks within a trend. It forms a channel from moving averages of highs and lows, then uses the sign of a linear regression slope as a directional filter. When the slope is positive, it places a long limit order at the prior lower channel boundary; when negative, it places a short limit order at the prior upper boundary. Existing positions are exited at the opposite boundary when the slope changes direction.

The author reports that initial automation with basic parameters was not successful and recommends optimizing the settings for each instrument. The document gives a DAX daily-chart example using a stated spread and sample period, but it reports no performance metrics or comparison against alternatives. The example therefore illustrates the setup rather than establishing profitability. Results may depend on market, timeframe, execution assumptions, and parameter selection; the document does not describe safeguards against overfitting.

Key ideas

• The method uses moving averages of highs and lows to define a trading channel.
• A linear regression slope selects long or short direction.
• Limit entries target the prior channel boundary in the direction of the slope.
• Positions exit at the opposite boundary when the slope changes sign.
• The author recommends instrument-specific optimization but provides no performance metrics.

Tags

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