Fisher Transform Explanation
Probability Distribution Function of price and indicators do not have a Gaussian, or Normal, probability distribution. A Gaussian Probability Distribution Function is the familiar bell-shaped curve where the long “tails” mean that wide deviations from the mean occur with relatively low probability. The Fisher Transform can be applied to almost any normalized data set to make the resulting Probability Distribution Function nearly Gaussian, with the result that the turning points are sharply peaked and easy to identify. The Fisher Transform is defined by the equation:
Whereas the Fisher Transform is expansive, the Inverse Fisher Transform is compressive. The Inverse Fisher Transform is found by solving equation 1 for x in terms of y. The Inverse Fisher Transform is:
The transfer response of the Inverse Fisher Transform is shown in pic. 1. If the input falls between –0.5 and +0.5, the output is nearly the same as the input. For larger absolute values (say, larger than 2), the output is compressed to be no larger than unity. The result of using the Inverse Fisher Transform is that the output has a very high probability of being either +1 or –1. This bipolar probability distribution makes the Inverse Fisher Transform ideal for generating an indicator that provides clear buy and sell signals.
pic. 1 - Fisher Transform
One of the more popular technical indicators is a Stochastic RSI. This indicator starts by taking an RSI of price. Then, a Stochastic of that RSI is taken to limit the output to be between 0 and 100. Translating and scaling, this is mathematically the same as varying between –1 and +1.
John Ehlers FisherTransform Divergence Indicator - Explanation
Fisher Transform Divergence Indicator generation III is modern indicator with complex mathematic algorithm (BJF Trading Group innovation). You will see divergenses on the chart and indicator. Arrows painted above/below the open bar and not in the past. You can see when actually you can trade. It is never to late! Signals based on closed bars so the arrows above/below open bar never disappear.
MT4 Indicator Fisher Transform Divergence indicates fractal divergence by Fisher Transform indicator.When divergence appears between Fisher Transform and the price, it indicates a high probability that the current trend will finish soon. A signal to buy is when a new Low-fractal is formed below the previous one and a corresponding Fisher Transform value is higher than the previous one. A signal to sell is when a new Up-fractal is formed above the previous one and a corresponding Fisher Transform value is lower than the previous value. The indicator has a lot of customizable settings.