MA Crossover with R Squared

This indicator enhances the classic Moving Average (MA) crossover strategy with statistical filtering and prediction capabilities.
Let me explain what it does:
Instead of just showing when a fast MA crosses above/below a slow MA, this indicator adds R² (R-squared) filtering to identify higher-quality crossovers and predicts future crossovers.

What is R²?
R² (Coefficient of Determination) is a statistical measure that shows how well one variable explains the movement of another variable. In simpler terms:
R² = 1.0: Perfect relationship - 100% of the movement in one MA is explained by the other MA
R² = 0.8: Strong relationship - 80%
R² = 0.5: Moderate relationship - 50%
R² = 0.0: No relationship - 0%

Imagine two cars driving on a highway:

High R² (0.9): Both cars are in the same lane, moving together consistently
Low R² (0.3): One car is weaving between lanes while the other stays straight - poor coordination.

Traditional MA crossovers often generate false signals during:

Choppy markets (price bouncing around)
Sideways/ranging markets
Low volatility periods
News events causing temporary spikes

The R² Solution:
R² acts as a "quality filter" that answers: "How meaningful this crossover is?"
What this means:

Before R² filtering: Every crossover generates a signal
After R² filtering: Only crossovers with R² > threshold generate signals
Result: Fewer but higher-quality signals.

MARKET REGIME DETECTION
High R² (> 0.7): Strong trending market - MA crossovers are reliable
Medium R² (0.4-0.7): Moderate trending - use with caution
Low R² (< 0.4): Choppy/range-bound market - avoid MA crossover signals
Increasing R²: MAs are converging/moving together more closely
Decreasing R²: MAs are diverging/losing coordination
Sudden R² drop: Potential market regime change.

Why Square the Correlation?
Correlation: Measures direction AND strength (-1 to +1)
R²: Measures strength ONLY (0 to 1)
In trading: We care about relationship strength, not direction
Direction is already indicated by crossover type (bullish/bearish)
Real-World Interpretation:
If R² = 0.64, it means:

64% of the variation in the fast MA is explained by the slow MA
36% is "noise" or unexplained movement
The MAs are moderately coordinated.

R² Trend Confirmation:
Entry: When crossover occurs AND R² is above threshold
Confirmation: R² continues rising after entry
Exit: R² drops below threshold (relationship weakening)

Multi-Timeframe R² Analysis
Check R² on higher timeframe for trend context
Use current timeframe for entry signals
Example: Daily R² > 0.7 gives bullish bias, use 1-hour for entries.

R² LIMITATIONS & CAUTIONS
1. Lagging Nature
R² is calculated from past data
By the time R² is high, the trend may already be established

2. Not a Standalone Indicator
R² should confirm other signals, not generate them alone
Always combine with price action, volume, support/resistance

3. Curve Fitting Risk
Don't over-optimize R² thresholds on historical data
What worked in the past may not work in the future
Use R² as a filter, not a predictor

4. Market-Specific Behavior
R² thresholds that work in trending stocks may fail in Forex
Cryptocurrencies may require different R² settings than commodities
Always test on your specific market/instrument

Before Taking Any Signal:
✅ Does the crossover have a colored circle? (R² > threshold)
✅ What's the R² number shown? (Higher = better)
✅ Is R² rising or falling? (Rising = strengthening relationship)
✅ Check history table - what happened with similar R² values?
✅ Consider prediction - does it align with current signal?

Simple R² Rules of Thumb:
R² > 0.8: Excellent signal quality
R² 0.6-0.8: Good signal quality
R² 0.4-0.6: Moderate - use additional confirmation
R² < 0.4: Poor - avoid or use extreme caution

Think of R² as:
A quality control inspector for MA crossovers
A relationship therapist for your moving averages
A statistical bouncer that only lets strong signals through
Higher win rate + Better risk/reward = More profitable trading

This script transforms the basic "when lines cross" approach into a sophisticated, statistically-validated trading system. R² is the secret sauce that separates random crossovers (Golden/Death) from meaningful trend changes.

DISCLAIMER: This information is provided for educational purposes only and should not be considered financial, investment, or trading advice. Please do boost if you like it. Happy Trading.