RSI + Normalized Fisher Transform with Signals

The RSI + Normalized Fisher Transform with Signals indicator combines momentum, trend smoothing, and Gaussian-distributed reversal detection to identify high-probability turning points in the market.

Usage

The tool is used to identify potential market reversals and trend continuation opportunities through four distinct signal types. By normalizing the Fisher Transform to a 0-100 scale, traders can easily compare momentum (RSI) and statistical turning points (Fisher) on a single unified pane.

• Strong Buy: Occurs when the RSI crosses above its Moving Average while both are below the oversold threshold, supported by an oversold Fisher Transform.
• Weak Buy: Occurs when the RSI crosses above its Moving Average between the oversold threshold and the 50 level, provided the Fisher Transform is oversold.
• Strong Sell: Occurs when the RSI crosses below its Moving Average while both are above the overbought threshold, supported by an overbought Fisher Transform.
• Weak Sell: Occurs when the RSI crosses below its Moving Average between the 50 level and the overbought threshold, provided the Fisher Transform is overbought.

Details

The indicator relies on three primary components:

1. Relative Strength Index (RSI): Measures price momentum to identify over-extended market conditions.
2. RSI Moving Average: A simple moving average of the RSI used to filter out noise and provide crossover signals.
3. Normalized Fisher Transform: Traditionally, the Fisher Transform creates unbounded values. This implementation normalizes the output to a 0-100 range, allowing for direct visual correlation with the RSI and the same overbought/oversold horizontal levels.

The mathematical transformation of price data into a Gaussian normal distribution via the Fisher Transform makes turning points sharper and more distinct than standard oscillators.

Settings

• RSI Length: The lookback period for the RSI calculation (Default: 14).
• RSI Moving Average Length: The period for the smoothing average applied to the RSI (Default: 9).
• Fisher Transform Length: The lookback period used for the Fisher Transform calculation (Default: 10).
• Oversold Threshold: The level below which the market is considered oversold (Default: 30).
• Overbought Threshold: The level above which the market is considered overbought (Default: 70).

FAQ

How do I interpret the different arrow sizes? Large labels with letters represent "Strong" signals based on deeper exhaustion, while small triangles represent "Weak" signals based on momentum shifts near the equilibrium point.

Can I use this for day trading? Yes, the indicator is versatile across timeframes; however, it is recommended to use higher timeframes to confirm the overall trend before taking signals on lower timeframes.

How do I access the RSI + Normalized Fisher Transform with Signals? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.