fisher transform strategy Archives

Is the Fisher Transform really that good? What’s the win rate of the Fisher Transform Strategy? What are the advantages and Disadvantages of Trading with the Fisher Transform Indicator? In this video, I took 100 Trades with the Fisher Transform Strategy to find that out! Fisher Transform is an interesting indicator because while taking 100 trades with it, it was indicating the end of a pullback with great accuracy. In fact, till the first 30 or so trades, the profit line in the Trading Rush App went in an upward direction in almost a straight line.

However, the good accuracy was not the only thing that led to a good profit graph at the start. You see, the Fisher Transform Indicator compared to other accurate indicators like MACD reacts to the price movement faster. When the pullbacks were smaller in a good trend, the Fisher Transform was quick at reacting to the price movement and gave entry signals pretty much near the end of the pullbacks. But as we saw in the Fisher Transform Strategy video, the Fisher Transform Indicator is unbounded. So when the smaller pullback was actually the end of the pullback, there was no problem and the Fisher Transform’s faster signals gave multiple winning trades in a row. But when the smaller pullback was just a part of a bigger pullback in a trend, the Fisher Transform Indicator gave a decent amount of false signals by reacting to price faster.

The Fisher Transform is an excellent indicator, but it is a bit noisy compared to other slow-to-react but accurate indicators like MACD. Since the price doesn’t move like a stick, in the long run, the Fisher Transform gave more false signals and gave back most of the profit made at the beginning. Unlike many other indicators that performed well on their own and gave win rates as high as 58 and 62 percent on the Trading Rush Channel, the Fisher Transform is better used with other indicators as a confirmation. Like I said before, the Fisher Transform is a pretty accurate indicator, but noisier. So using it to confirm reversals at support and resistance areas is a good idea only if the price movement is good. If the price movement is choppy, looking at Fisher transform is not such a good idea. You will get a lot of false signals in a row.

The Fisher Transform Trading Strategy lost 15 trades in a row and won 8 trades in a row. After 100 trades, it got an approximate win rate of 42 percent with a 1.5 to 1 reward risk ratio. The win rate was good in the short term but average and lower than what some of you were expecting in the long term. Strategies that react to price movement faster can have a good winning streak and show a high win rate in the good market conditions, but then also give more false signals and a worse losing streak in the long run.

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The Fisher Transform Strategy gets a TR Score of 23.7 out of 50, and ranks 24th from the top, below the Hull Moving Average with SMA Strategy, and above the Stochastic Trading Strategy. That’s all.

Fisher Transform Trading Strategy – How to use the Fisher Transform Indicator

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Imagine that there is a magical room and there is Bill the second. Every one minute, a different version of Bill the first, comes out of this magical room and asks Bill the second if he would like to buy or sell some apples at a certain price. The first version of Bill the first asks Bill the second if he would like to buy or sell an apple for 1 dollar. Bill the second who has no clue what’s going on, declines the offer. Then another version of Bill the first pops out of the magical room and offers to buy or sell an apple for 3 dollars. This version of Bill the first is willing to trade an apple for 2 dollars more than the previous Bill the first. Bill the second who still has no idea what’s going on, declines the offer, and another Bill the first pops out, then another, and another. Soon, Bill the Second notices that different versions of Bill the first are looking to trade apples at different prices. Some are looking to buy or sell as low as 1 dollar and some are willing to buy or sell a single apple for 10 dollars. But most versions of Bill the first are trading a single apple around 5 dollars.

After noticing this, Bill the second comes with an idea to get rich. When a version of Bill the first appears who is selling an apple far away from the average, let’s say for 1 dollar, Bill the second happily buys an apple. Then, since he knows most versions of Bill the first are looking to trade an apple around 5 dollars, Bill the second can wait for Bill the first to appear who is willing to buy an apple for 5 dollars or higher. Since the price stayed near the 5 dollars most of the time, Bill the second made money by buying when the price made a move significantly lower than the average and by selling when the price made a move significantly higher than the average.

In simple words, that’s pretty much what the Fisher Transform Indicator shows. Fisher Transform signals when the price has moved significantly by looking at recent price data. If you want to make money like Bill the second by trading when the price makes a significant move, the Fisher Transform Indicator is for you.

This is what it looks like on TradingView and will come with a default length of 9. It will also come with two lines called the Fisher and the Trigger line.

Similar to Bill the first example, Fisher Transform can be used to find reversals. But remember, unlike Bill the first example where versions of Bill the first were only buying and selling between 1 dollar and 10 dollars, the Fisher Transform is unbounded.

It means that the Fisher Transform value can go in one direction for a long time.

In the range market, when the Fisher Transform goes significantly below the zero line, it is a good idea to look for buying opportunities. Many traders also use the crossover of the Fisher and Trigger lines to generate entry signals. When the Fisher Line crosses above the Trigger Line below the zero line, it is a buy entry signal. When the Fisher Transform goes significantly above the zero line in the range market, it is a good idea to look for selling opportunities. Many traders will sell when the Fisher Line crosses below the Trigger Line above the zero line.

That’s good for the range market, but in an up-trending market, the Fisher Transform will give a lot of false short entry signals since the previous extreme highs are easily crossed. Similarly, there will be a lot of false long entry signals when the price is breaking the previous swing low in a downtrend.

So when the price is above the 200 EMA, many traders will only look for long signals and will buy when the Fisher Line gives a long crossover below the zero line. Set the stoploss below the pullback. And when the price is below the 200 EMA, many traders will sell when the Fisher Line gives a short crossover above the zero line. Set the stoploss above the pullback.

We will test this Fisher Transform Trading Strategy 100 times in the next video to find its win rate and to see how it compares with other trading strategies we have tested so far on the Trading Rush Channel.