Fisher Transform Indicator is a trading indicator, which is available on almost all charting platforms like Tradingview.
Do you want to know how to use this indicator and which is the best settings and time frame for this indicator to get high accuracy, then read this complete post.
I have also used the Fisher Transform indicator during trading hours but when we use default settings of charting platforms.
Then we get too much fake signal and volatility in the indicator, which makes it difficult to understand this indicator.
For a trader, it’s important that he/she can understand indicators nicely, so without wasting time, let’s get started.
Fisher Transform is a chart-based indicator consists of two lines that move with the line.
One line is referred as the Fisher line and the other is referred to as the Trigger line of which the Fisher line analyse less previous data while the Trigger line analyses more number data than the Fisher line.
This makes the Fisher line to be more volatile than the Trigger line and this also results in the crossovers between these two lines.
Due to the consideration of fewer data in the Fisher line, these lines react faster than the Trigger line.
Regarding the setting of this indicator, we can change the period length i.e how much data to countback.
Types of Indicator
As per my observation and experience, Fisher Transform Indicator is a leading indicator i.e this indicator indicates reversal faster than the lagging indicator.
Fisher Transform indicator best settings
As per my observation, many traders face too much up-down in Fisher Transform Indicator with default settings.
As many charting sites use either 9 or 14 as their default period setting for this indicator.
But with default settings, Fisher Transform Indicator shows too many countless crossovers both negative and positive crossovers.
So, I researched a lot before writing this post to find the best settings for Fisher Transform Indicator.
And I found that increasing the period of this increase can decrease the volatility in this indicator.
For this analysis, I used Tradingview free chart, I tried multiple periods to reduce the volatility of this indicator and my conclusion was that I need to use a period length of 155, to reduce the volatility as shown in the below image.
Increasing the period length to 155 help me a lot to decrease the fluctuations I’m this indicator but still, there are a few fluctuations.
Chart settings for Fisher Transform Indicator
With indicator setting chart settings also plays a very important role in building a strategy.
Knowing the volatility of the Fisher Transform Indicator, I find that 5-minute charts are good for this indicator.
The reason for choosing a 5-minute chart is that the 5-minute time frame is not so big and not so small a time frame for day trading.
On a higher time frame like 5 minutes, the stock volatility also becomes lower and we can see a little bit clear picture.
Fisher Transform Indicator Backtest
For backtesting of this indicator, I used 5 minute chart time frame setting and 155 periods as an indicator setting.
As per my backtesting, I found that the accuracy of this indicator is 60% to 70%, depending upon the type of stocks.
During my backtesting, I also found that this indicator doesn’t work on highly volatile stocks.
Some traders who are beginner or intermediate in trading do some common mistake while first time using this indicator which are as follows:
1) Using Lower Chart time frame: Many traders try to use this indicator on lower chart time frames such as one minute, two minutes, and three minutes.
A lower time frame shows variations in candles and indicators more than usual and indirectly causes loss to a trader.
2) Using without backtesting: Some traders by mistake use this indicator without backtesting and live testing.
As result, they are not able to understand this indicator whether to use it or not.
3) Ignore volatility of this Indicator: I don’t think, on lower period settings a trader can understand and use this indicator.
From a starter trader to an advance trader no one can understand too much volatility of this indicator.
As per my learnings, a trader should not use this indicator with backtesting and forward testing.
Fisher transform indicator strategy
Fisher Transform Indicator is a very basic indicator that shows trading signals based on crossovers which are as follows:
1) Upward crossover: In this crossover, the Fisher line crosses the trigger line in an upward direction and starts to move up.
Then, it’s a signal about the stock/index that it can go up.
2) Downward crossover: In this crossover, the Fisher line crosses the trigger line in a downward direction and starts to move down.
Then, it’s a signal about the stock/index, that it can go down.
Advantages of Fisher Transform Indicator
As we all know every indicator has some good points and some bad points.
If an indicator has more good points then it’s a good indicator whereas if an indicator has more bad points then it’s a bad indicator.
Few goods points of this indicator are as follows:
1) Price consideration: The one of the important good point to notice about this indicator is that Fisher Transform Indicator give more weightage to recent price.
And due to this, Fisher Transform Indicator tells reversal fast.
2) Works in Trending phases: The one more good thing about this indicator is that Fisher Transform Indicator works well in the trending phases of a stock or index.
For example, if a stock is trading in an uptrend, then this indicator shall not show any negative crossover until the stock breaks it up to the trend.
That’s it, as per my knowledge, there are two good points of Fisher Transform Indicator which are above mentioned.
Disadvantages of Fisher Transform Indicator
This is the most important part of this post, that what are the demerits of this indicator.
Below listed points are some of the disadvantages of the Fisher Transform Indicator:
1) No performance in sideways markets: You can check on your own, this indicator’s performance in the sideways market is very bad.
This indicator creates confusion in the mind of a trader when a stock/index becomes sideways.
So, it’s better for a trader to not use Fisher Transform Indicator when an index/stock is trading sideways or in a range-bound area.
2) Too much dancing: If you add this indicator on any chart either of stock or the index, then you will see that how much this indicator dance.
If a stock is moving up, and the stock doesn’t show any sign of weakness, then also this indicator shows many negative crossovers.
3) Failing of Divergence: Fisher Transform Indicator also shows the divergence between price and indicator i.e price of an asset moving up but the indicator is moving down and vice versa.
The rate of showing divergence is very high in this indicator i.e on any time frame it shows frequent divergences.
4) Difficult to read: Before reading this line, try to check the above what you are understanding and what’s your conclusion?
I don’t think a beginner or a professional trader can understand this indicator as shown in the above image.
So, this the condition of this indicator, now I hope one can imagine, what shall be the condition of a trader who is using this indicator.😃
I hope you have read the complete post, so let me describe my views about this indicator.
An indicator is a key that helps a trader to open the doors of trading and enlights a trader’s way.
As per my understanding, this indicator is not that indicator that helps a trader to understand moves and trading!!
Can we use this indicator for swing trading?
Yes, as per my experience Fisher Transform Indicator can be used for both intraday and swing trading but setting of the chart is very important.
Can we use this indicator for forex trading?
Yes, as this indicator use price to for calculations then we can use this indicator for forex trading as well.
Is this indicator good for option trading ?
Yes, as per my practical experience this indicator can help a trading in both options trading and futures trading.
What is the difference fisher transform indicator and macd?
The most important difference between Fisher Transform Indicator and MACD is that Fisher Transform indicator use price of an asset for it’s calculations while
MACD use exponential moving average for it’s calculation.
Fisher Transform indicator very volatile and MACD is non-volatile.
How to set up fisher transform?
To setup Fisher Transform Indicator, you need a charting platforms. You can also use Tradingview, which is a free charting platform.
1. Open Tradingview Charts
2. On the top bar click on indicators.
3. Select Fisher Transform Indicator.
What period is best for fisher transform?
Dus to Volatility in this indicator, one needs to use higher periods, in my analysis I used ‘155’, for more clarification, read the complete post.
How to read fisher transform indicator?
Its very easy to read fisher transform indicator, this indicator is consists of two lines which shows negative crossover and positive crossovers.
For full information read the complete post.
Is Elher Fisher Transform Indicator and Fisher Transform Indicator same?
Yes, both are same indicator actually some charting platform add the name ‘Elher’ , who developed this indicator.
Because of this some charting platforms add ‘Elher’ at the beginning and some not.
If this post has helped to increase your knowledge then do share with your fellow traders.
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