Fisher Transform


The Fisher Transform was presented by John Ehlers in the Stocks and Commodity Magazine November 2002.
John Ehlers wrote an article "Using the Fisher Transform" and introduced a Technical Analysis (TA) indicator called the Fisher Transform or Fish.

Fisher Transform indicator is used to identify price reversals and is based on the assumption that prices behave like a Square Wave and do not follow a Gaussian or Normal distribution. In fact, a Gaussian probability density function (PDF) is a bell-shaped curve where 68% of the samples are within one Standard Deviation from the Mean; this is Clearly not true.

The Fisher Transform formula transforms the probability density function of any Waveform to a function that has almost a Gaussian PDF.

It assumes that price distributions behave like Square Waves. The Fisher Transform uses the Mid-point or Median price in a series of calculations to produce an oscillator. A Signal line which is a Previous value of itself is also displayed.

Many trading systems are designed using the assumption that the probability distribution of prices have a Normal, or Gaussian,
Probability Distribution about the mean. In fact, nothing could be farther from the truth. This paper describes how the Fisher Transform converts data to have nearly a Normal Probability Distribution. Given the Probability Distribution is Normal after applying the Fisher Transform, the data is used to create Entry Points with Surgical precision.