Fisher Transform Indicator Guide for MT4/MT5
Fisher transform indicator FAQ
What is the Ehler-Fisher transform indicator ?
Fisher transform indicator is an oscillator that helps identify forex trend reversals. However, it is applicable to any financial instrument. It was created by J.F. Ehlers and transforms prices into a normal Gaussian distribution. The oscillator moves above and below a zero line. Moreover, it has clear turning points, making it easy to identify trend reversals. It is commonly a useful part of a trading strategy that takes price action into account.
How does it work?
The Fisher indicator transforms prices into a normal distribution. This indicator can then become useful in technical analysis. What does this mean? When this indicator is above the zero line and rising. The asset is overbought signal. Whereas when it is below the zero line and goes down. So we can say that the asset is oversold. In either case, the probability of a trend reversal increases over time. When traders receive a buy or sell signal from another indicator. And this signal indicator confirms the signal sent by the Fisher. So, traders open a corresponding position.
How do you trade with it ?
Trading the Fisher Transform is fairly easy. First, chartists have better use it with trending financial assets where the price is climbing upsides or downsides. Because the indicator is not very suitable with ranging asset prices. Second, they should track the intersection moment of the two fisher lines as a potential surge in the price action would happen with this crossing. Third, they should inspect whether the crossover occurred below or above the zero level of the Fisher technical tool.
Crossover example
On the downer price chart, we clearly witness that the one-hour EUR/CAD pair commenced new a bullish move once the two lines of the MT5 Fisher transform created a crossover below the zero level of the indicator. To explain, this is revealed by the colored lines on the chart example.
Also, the currency pair started a new bearish trend when the two lines of the MT4 technical tool made a crossover above the zero level of the Fisher transform.
Reversal example
On the downer figure, we see a Fisher transform application one the 15 minutes AUD/USD pair. Here, we spot clear trend reversals when the slope of both lines of the MT4 indicator, the Fisher transform line and the trigger line, reverse. To clarify, this is shown by the colored lines in the price figure below.
Download Fisher transform indicator for MT4
Fisher Transform indicator for MT4 is a Metatrader 4 technical tool used with any forex trading system/strategy. And this is for further confirmation of trading inputs or outputs. This type of indicator is calculated as follows:
Fisher transform = ½ * ln [(1 + X) / (1 – X)].
Where:
- ln: is the abbreviation of the natural logarithm.
- X: represents the transformation of the price at a level between -1 and 1. This choice is to facilitate the calculation.
If we look at the chart above we conclude the following:
- When the Fisher indicator on MT4 is above the zero line. So, this means we are in a bullish market.
- And when it is below the zero line. It means we are in a bearish market.
Download Fisher transform indicator for MT5
Fisher transform indicator for MT5 uses a statistical and mathematical algorithm to generate reversal predictions in Metatrader 5 Platform. It uses previous maximum and minimum levels created by trading instruments. When we use this indicator in MT5. We can observe these situations:
- If a crossover occurs in a downtrend. It means that we may have reached a level of exhaustion. So we should look for sales opportunities.
- Similarly, if a crossover occurs in an uptrend. It would mean that there is an exhaustion of the downtrend, so we could see a reversal. We can consider this case as a buy signal.
Indicator limitation
Fisher Transform can be quite noisy at times. Although its purpose is to make turning points easier to spot. When we look at all the directional changes of the fisher transform indicator. This helps to spot short-term changes in price direction. However, the signal may have come too late to take advantage. As many of these price movements may be short-lived. Asset prices are not normally distributed. So attempts to normalize prices may fail to provide a reliable signal.
Conclusion
The fisher transform indicator helps to visualize the signals on the candlestick charts. These signals are due to the presence of clear turning points. Which indicates the highest rate of change. Its operation is based on the belief that market prices do not seem to have a Gaussian probability density function.