In today's article, I will describe the Ehler's Fisher Transform indicator. It belongs to the leading indicators group. Its main role is giving early information about a potential change in the trend. The Fisher Transform indicator can be used as a trading signal generator.
Contents
What is the Fisher transform indicator?
John F. Ehlers was a creator of the Fisher Transform indicator. It tries to normalize financial instrument prices so the turning points in prices are more apparent. Sometimes the traders watch for changes in direction of the indicator and sometimes for extreme readings. It helps to catch the trend as well as to isolate the waves of the price during the trend.
How to attach the Ehler's Fisher Transform indicator to the IQ Option chart
Log in to your IQ Option trading account. Once you have decided what asset you are going to trade during this session, click on the Chart analysis icon on the left side of the platform. Go to the Indicators tab and select Trend. You will find the Fisher Transform on the list on the right side.
You can also type the name of the indicator you are looking for in the search box in the top right corner.
There are two lines that form the Ehler's Fisher Transform indicator. One is called EF and the other one EF Trigger. The latter is the signal line which is a moving average of the indicator value. It moves a bit slower than the EF – Fisher Transform line.
The Ehler's Fisher Transform indicator appears in a separate window beneath the price chart. The colours of the lines are green and red by default. You can, however, change them according to your preferences. You can also change the width of the lines and the indicator's period.
The similarity to the Bollinger Bands indicator
What connects the Ehler Fisher Transform and the Bollinger Bands indicators is the fact that they are both based on the asset prices distribution. But the BBands uses a standard deviation while the Fisher Transform uses a Gaussian normal distribution.
The two indicators look quite different on the chart. The Bollinger Bands are extended over the price and the Ehler's Fisher Transform indicator is moving in a separate window below the price chart.
Using the Ehler's Fisher Transform indicator in trading on IQ Option
The Ehler's Fisher Transform indicator can stay in extreme areas for quite a long time. The extremes are based on past readings for the chosen asset and are different for various instruments. They inform about a possible reversal of the trend. A good idea is to wait for a confirmation through the change of direction of the Ehler's Fisher Transform indicator. The crossing of the Fisher Transform and the signal lines occurs then.
Opening a long position with the Ehler's Fisher Transform indicator on the IQ Option platform
The indicator was falling for some time and finally has reached a lower extreme. This could be a signal of the upcoming trend reversal. Wait for the Fisher Transform indicator's lines to cross. The Fisher Transform line is rising above the trigger line. It can be read as a signal to buy.
Opening a short position with the Ehler's Fisher Transform indicator
There was an uptrend and the lines of the Fisher Transform indicator were rising. Eventually, they reach the upper extreme. Then, the Fisher Transform line crosses the signal line from above and continues downwards. You may predict the asset price will change direction and thus, you should open a short trading position.
How does Fisher transform work?
You will receive quite many signals from the Ehler's Fisher Transform indicator. Some of them will not be reliable. That is the reason why many traders are using trend analysis additionally.
The readings of the extremes can occasionally cause problems. One thing is that they are changing over time. For example, 4 may be the upper extreme for a selected asset for several months and then 8 may begin to appear regularly. Another thing is that the extreme readings do not always lead to the reversal of the trend. Sometimes they show just a minor price correction or that the price merely moves sideways.
You should practice trading with the Ehler Fisher Transform indicator in a save environment of a free IQ Option demo account. You will not risk your own money while learning to use the indicator. Once you get to know it, you can move to the live account and earn profits.
Tell us in the comments section below whether you are familiar with the Ehler Fisher Transform indicator and whether you make some money with it.
Wish you high profits!