DEFINITION of 'Least Squares Method'
A statistical technique to determine the line of best fit for a model. The least squares method is specified by an equation with certain parameters to observed data. This method is extensively used in regression analysis and estimation.
INVESTOPEDIA EXPLAINS 'Least Squares Method'
In the most common application  linear or ordinary least squares  a straight line is sought to be fitted through a number of points to minimize the sum of the squares of the distances (hence the name "least squares") from the points to this line of best fit.
In contrast to a linear problem, a nonlinear least squares problem has no closed solution and is generally solved by iteration. The earliest description of the least squares method was by Carl Freidrich Gauss in 1795.
RELATED TERMS

Sum Of Squares
A statistical technique used in regression analysis. The sum ... 
Standard Deviation
1. A measure of the dispersion of a set of data from its mean. ... 
Multiple Linear Regression  MLR
A statistical technique that uses several explanatory variables ... 
Linear Relationship
A statistical term used to describe the relationship between ... 
Regression
A statistical measure that attempts to determine the strength ... 
Credibility Theory
Tools, policies, and procedures used by actuaries when examining ...
Related Articles

Investing Basics
Regression Basics For Business Analysis
This tool is easy to use and can provide valuable information on financial analysis and forecasting. Find out how. 
Active Trading
The Linear Regression Of Time and Price
This investment strategy can help investors be successful by identifying price trends while eliminating human bias. 
Economics
What are some limitations of the consumer price index (CPI)?
Explore some of the basic limitations of the widely used economic indicator, the consumer price index, or CPI, and examine the criticism of its accuracy. 
Economics
Is the consumer price index (CPI) a cost of living index?
Explore the consumer price index (CPI) and understand why it is not an actual cost of living index although it is often identified as one. 
Fundamental Analysis
What is the affect of the invisible hand on consumers?
Discover how consumers help initiate and benefit from the invisible hand of the market, which naturally coordinates trade in an exchange economy. 
Economics
How does the invisible hand phenomenon affect investment markets?
Read about how the invisible hand of the market coordinates investment markets and provides social benefit and why its effects are distorted along the way. 
Fundamental Analysis
What are some examples of economies of scale?
Take a look at different examples of economies of scale, including how marginal costs can be reduced through external and internal factors. 
Fundamental Analysis
How can quantitative easing be effective in the economy?
Take a deeper look at the impacts of the Federal Reserve's large scale asset purchase plan, better known as quantitative easing, or QE. 
Economics
Where do funds report their rsquared?
Learn where to find Rsquared calculations for mutual funds. Explore Rsquared, Alpha and Beta and how these calculations measure securities' performance. 
Fundamental Analysis
How do you calculate rsquared in Excel?
Calculate Rsquared in Microsoft Excel by creating two data ranges to correlate. Use the Correlate formula to correlate both sets of data, or x and y.