Using technical indicators for cryptocurrency trading often presents a key issue: most of the time, these indicators provide signals late in the game – this means traders receive signals after a trend has already begun or has concluded. Such delayed signals can hinder trading success because they prevent traders from fully capitalising on market trends. This is where the need for innovative indicators that offer earlier signals arises.
If you are searching for one such indicator, you might want to consider the Ehler Fisher Transform.
1. Ehler Fisher Transform: What’s It
The Fisher Transform indicator is a leading indicator used in crypto trading to spot extreme trends in the market. It was developed by US engineer John F. Ehlers by using something called the Standard Gaussian Distribution. In practical terms, the indicator helps traders by giving them a heads-up about significant changes in market trends.
1.1. Standard Gaussian Distribution Explained
The Standard Gaussian Distribution is a way to understand how things are normally spread out or distributed in nature, especially when you are dealing with numbers. Imagine a bell-shaped curve. In the middle of the curve is where most things are and as you move away from the middle in either direction, things become less common.
2. How Does Ehler Fisher Transform Work
The Fisher Transform indicator consists of two lines: the ‘Fisher’ line and the ‘Trigger’ line. These lines help traders understand whether the price of an asset is likely to go up or down. When the ‘Fisher’ line crosses above the ‘Trigger’ line and goes from negative to positive, it suggests that the price might increase. On the other hand, when the ‘Fisher’ line crosses below the ‘Trigger’ line and goes from positive to negative, it indicates that the price might decrease.
3. Calculating Ehler Fisher Transform
Here are the formulas for calculating the Ehler Fisher Transform indicator.
| Fisher = 0.5 * In[(1 + X) / (1 – X)] |
You first need to calculate a value ‘X’, which is based on the current price and its previous value.
| X = (2 * EMA (PERIOD/2) – EMA(PERIOD)) / (HIGHEST(H, PERIOD) – LOWEST(L, PERIOD)) |
- Calculate the EMA of the price over a specific period (p/2).
- Calculate the EMA of the price over the full specified period.
- Find the highest price and the lowest price over the same specified period.
- Apply the values in the formula to get the value of ‘X’.
Then, you use this ‘X’ value to calculate the Fisher lines.
| Trigger = Previous Fisher Line |
The Trigger line is simply the Fisher line from the previous calculation. It helps smooth out the indicator.
4. Steps to Launch Ehler Fisher Transform on a TradingView Chart
The below given are the prime steps to launch the Ehler Fisher Transform on a TradingView chart.
- Sign in to TradingView
- Open a chart of the asset you want to analyse
- Click on ‘Indicators’ at the top of the chart
- Type ‘Ehler Fisher Transform’ in the search bar
- Click on it to add it to your chart
- Adjust the settings if needed, like the period or colours
- Use Ehler Fisher to read trade signals
5. Interpreting Ehler Fisher Transform: What You Should Know
The prime signals Ehler Fisher Transform gives are:
When the Fisher line crosses above the Trigger line, this suggests the price might go up. So you could consider buying.
When the Fisher lines crosses below the Trigger line, this suggests the price might go down. So you might think about selling.
When the Fisher line crosses above the zero line, this indicates that the price might go up. On the other hand, when the Fisher line crosses below the zero line, this suggests that the price might go down.
When the Fisher line is curving upwards, it can be a sign of a strong upward trend. Conversely, when the Fisher line is curving downward, it can signal a strong downward trend.
Endnote
The Ehler Fisher Transform is a leading indicator for crypto traders, offering insights into market trends. Developed by John F. Ehlers using the Standard Gaussian Distribution, it helps traders spot extreme market movements. By understanding its signals, such as crossovers, zero line crossings, and curve patterns, traders can make informed decisions about when to buy or sell. When using the Ehler Fisher Transform on TradingView, traders can enhance their analytical capabilities and improve their trading strategies.