Fisher Transform is a crossover oscillator indicator.

Being a crossover oscillator indicator, Fisher transform indicator was created by John  Ehlers with the main objective of helping traders to know of an oversold or overbought market condition thus traders will know when to enter or exit the market.

According to John Ehlers, Fisher Transform is used to transform time series data into a Gaussian Normal distribution function. Because of this,fisher transform can be considered to be an indicator that is used to transform the price of any foreign exchange rate,price of securities ,price of commodities and price of stocks into a Gaussian Normal distribution .

Since Fisher transform is a crossover oscillator, it therefore has oscillation at point 0.000 ranging from -1 to 1. On the other hand, as a crossover indicator, it has two crossover lines,the fisher transform line which is blue in color and the signal line mostly red in color.

 

According to John Ehlers, the values of Fisher transform is derived using the following formula;

Fisher transform= 1/2*natural logarithm{(1+x)/(1-x)}


NB;x is the transformation of price between the range of -1 to 1

 

Since fisher transform is based on crossover and has two crossover lines,the fisher transform which is blue in color and the signal line which is red in color,it therefore follows that trade signals will occur when these two lines crossover.Therefore,when the fisher transform crosses above the signal line at below -1,that will be an indication of an oversold market thus signaling the trader to close any sell position and enter a buy position since the market will start moving upwards.On the other hand,when the fisher transform crosses below the signal line at above 1,that will be an indication of an overbought market thus signaling the trader to close any buy position and enter a sell position since the market will start moving downwards.This is indicated as from the candle sticks chart below;

 

 

 

From the candle sticks chart above,there are 4 points,Point A,B,C and D. Point A and B represent crossover points while point C which is red in color represent the signal line.Point D which is blue in color represent the fisher transform line.

At point A,the fisher transform line has crosses below the signal line at above 1 thus an indication of an overbought market at that point.This will signal the trader to close any buy position and open a sell position since the market is starting a downward trend .

On the other hand,at point B,the fisher transform line  has crossed above the signal line at below -1 thus an indication of an oversold market at that point.This will signal the trader to close any sell position and open a buy position since the market is starting an uptrend.

 


Recommendation:If you are a day trader just use 1 min,5 min,15 min and 30 min timeframe while if you are a swing trader just use 1 hour and above timeframe if you want fisher transform indicator to work well for you.

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