An Introduction To The Fisher Transform Indicator

Hello friends welcome here. In this post, we have discussed the Fisher Transform indicator which is one of the most used and interesting indicators that is used in analyzing the market. It is all about you using it to identify potential turning points. Let's find out more about this indicator.

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The Fisher Transform Indicator

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This is an indicator that was developed far back by John F. Ehlers his reasons behind the development of the Fisher Transform indicator are to help normalize prices of assets so that they can be presented very well on a Gaussian distribution. It is the normalization of the indicator that helps traders and anyone who wants to use the indicator to analyze the financial markets, to spot price reversals very easily, clearly, and in a manner that is fast enough compared to oscillator indicators.

The main purpose for the creation of the Fisher Transform indicator is for you and me to be able to identify potential turning points in the price movements of whatever assets or currency you want to trade on. To make the signal more understandable, the indicator is used alongside other indicators such as trend lines, moving averages, and so on. Its features are very nice which I would like us to talk briefly about them.

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Key Features

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The key features of the Fisher Transform Indicator are:

• Transformation of Price

• Smoothed Oscillator

• Signal line

• Reversal Signals

• Transformation of price:
  The indicator takes price data which is typically from the midpoint of low and high prices, and applies a mathematical transformation to create values that are distributed a bell-shaped curve, which looks like a Gaussian distribution.

• Smoothed Oscillator:
  The result of the indicator is a smoothed curve that oscillates below and above zero, which helps traders identify the levels of overbought and oversold.

• Signal Line:
  The Fisher Transform indicator includes a signal line, which is the Fisher Transform smoothed over a period, helping to confirm the signals of buy or sell.

• Reversal Signals:
  When the indicator crosses below or above its signal line, it may be an indication of a potential reversal in the price trend, either signaling a selling opportunity which is when it is crossing downward, or a buying opportunity which is when it is crossing upwards.

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Calculation

The formula that is needed for calculating the Fisher Transform indicator is what is stated below.

Fisher Transform = 0.5 * ln[(1 + X) / (1 - X)]

X stands for the normalized price, which is typically a version of the low and high prices of the asset you are analyzing over a given period.

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How you can Use the Fisher Transform

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Using this indicator is very easy as all you will have to spot are; the buy signal, sell signal, and divergence which are very easy to spot. In doing this follow the steps.

• Buy Signal: This is the signal that occurs when the indicator line crosses above it signal line.

• Sell Signal: This is the signal that occurs when the indicator line crosses below its signal line.

• Divergence: You can use the indicator to look out for divergences between the price movements and the indicator as a suggestion for upcoming reversal or weakening trends.

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Disclaimer

_{This indicator which we have talked about is best used when combined with other indicators which you can apply with others to get accurate results of your analysis of the market. Please note that this post is purely written as educational content.}

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