In Forex trading, within the technical analysis family, econometric models are unique because they belong to the only category that generates a continuous stream of discrete numeric values as the forecast. For example, if the analyst has determined that a particular time series exhibits distinctly linear properties, then the following linear regression model should be used:
Y (x ) = Ax + B + ε
where,
x the independent variable, time
Y(x) the dependent variable, the price at time index x
A the slope
B the intercept
ε the error factor whose sum approximates zero.
By solving for the regression coefficients A and B, the trader can estimate the next value in the time series Y(·) by incrementing the value of x in the linear model.
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