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Cycle analysis > Fisher

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Download: FISHTRANSFOR.ELA

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Indicator - Cycle analysis

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Description:

Market prices do not have a Gaussian probability density function as many traders think. Their probability curve is not bell-shaped. But trader can create a nearly Gaussian PDF for prices by normalizing them or creating a normalized indicator such as the relative strength index and applying the Fisher transform. Such a transformed output creates the peak swings as relatively rare events.

Fisher transform formula is: y = 0.5 * ln ((1+x)/(1-x))


The sharp turning points of these peak swings clearly and unambiguously identify price reversals in a timely manner.

Usage:

If the prices are normalized to fall within the range from -1 to +1 and subjected to the Fisher transform, the extreme price movements are relatively rare events. This means the turning points can be clearly identified.




Inputs:

Len - number of bars to use in calculation
Price - data series to use in calculation

EasyLanguage Code:
Inputs: Price (( H + L )/2), Len (10);


Vars: MaxH(0), MinL(0), Fish(0);

MaxH = Highest (Price, Len);
MinL = Lowest (Price, Len);

Value1 = .33*2*((Price - MinL)/(MaxH - MinL) - 0.5) + 0.67*Value1[1];
If value1 > .99 then value1 = .999;
If value1 < - .99 then value1 = -.999;

Fish = .5*Log((1+Value1)/(1-Value1)) + .5*Fish[1];

Plot1(Fish, "Fisher");
Plot2(Fish[1], "Trigger");