Fisher Transform Trading Applications
The indicator is unbounded, which means extremes can occur for a long time. An extreme is based on the historical readings for the asset in question. For some assets, a high reading may be seven or eight, while a low reading may be -4. For another asset, these values may differ.
An extreme reading indicates the possibility of a reversal. This should be confirmed by the changing direction. For example, following a strong price rise and the reaching an extremely high level, when the starts to head lower that could signal the price is going to drop , or has already started dropping.
The frequently has a signal line attached to it. This is a moving average of the value, so it moves slightly slower than the line. When the crosses the trigger line it is used by some traders as a trade signal. For example, when the drops below the signal line after hitting an extreme high, that could be used as a signal to sell a current long position.
As with many indicators, the Fisher will provide many trade signals. Many of these will not be profitable signals. Therefore, some traders prefer to use the indicator in conjunction with trend analysis. For example, when the price is rising overall, use the for buy and sell signals, but not for short-sell signals. During a downtrend, use it for short-sell signals and ideas on when to cover.
The Difference Between The and Bands®
These two indicators look very different on a chart, yet both are based on a distribution of asset prices. Bands® use a normal distribution in that they use standard deviation to show when the price may be overextended. uses a Gaussian normal distribution. The appears as a separate indicator on a price chart, while Bands® are overlayed over the price.
Limitations of the Indicator
The indicator can be rather noisy at times, even though its intent is to make turning points easier to identify. Extreme readings are not always followed by a price reversal; sometimes the price just moves sideways or reverses only a small amount.
What qualifies as extreme can also be hard to judge, since the levels tend to vary over time. Four may be a high level for years, but then readings of eight may start to frequently appear.
Looking at all changes in direction on the can help spot short-term changes in price direction, yet the signal may come too late to capitalize, as many of these price moves may be short-lived.
Asset prices are not normally distributed, therefore attempts to normalize prices is inherently flawed and may not produce reliable signals.
Absolutely amazing work .Is there any possibility of being able to use the source code? I'd like to combine and experiment with it if it's okay with you with your permission. We can sign an NDA so that you have trust that I will not disclose it to any other person if you wish.
Many thanks. :)