Inverse Fisher Transform on RSI (backtest, bypass and alerts compatible)

The Inverse Fisher Transform on RSI (backtest, bypass and alerts compatible) indicator is a momentum-based oscillator designed to identify high-probability reversal points by applying an Inverse Fisher Transform to a smoothed RSI. This tool aims to provide highly responsive buy and sell signals with specific optimizations for automated backtesting and external filtering.

Usage

The indicator generates signals based on when the transformed RSI crosses user-defined threshold levels. It is particularly useful for finding overextended market conditions on lower timeframes like the 5-minute chart.

• Buy Signals: Occur when the signal line crosses below the specified buy level. Users can adjust the "Buy level min candle age" to require the condition to persist for multiple candles before firing, reducing false positives.
• Sell Signals: Occur when the signal line crosses above the sell level.
• Signal Reversals: By enabling "Buy on signal reversal" or "Sell on signal reversal," the indicator will only trigger a signal at the very end of a trend condition (the last candle the condition is met), which can help avoid "falling knives" or exiting too early during strong price pumps.
• Bypass Mechanism: Users can link an external indicator as a "Bypass source." If the external script plots a value of 1, the buy signals from this indicator will be suspended.

Details

The script calculates the RSI of a source price over a specific length and then applies a smoothing weighted moving average (WMA). This smoothed value is then processed through the Inverse Fisher Transform formula, which compresses the output between -1 and 1. This transformation makes the indicator spend more time near the extremes, providing clearer "trigger" zones for entries and exits compared to a standard RSI.

The indicator also includes an optional "TradingView Rating" filter, which dynamically adjusts buy and sell levels based on the broader technical sentiment (bullish or bearish) across different timeframes.

Settings

IFTRSI Settings

• RSI Length: The lookback period used for the internal RSI calculation.
• Smoothing length: The period for the WMA used to smooth the RSI before transformation.

IFTRSI Default Settings

• buy level: The threshold for entering long positions (default -0.9).
• sell level: The threshold for exiting positions (default 0.996).
• Buy level min candle age: Minimum number of bars the buy condition must be met before a signal is generated.
• Buy on signal reversal: Triggers the buy signal only on the final candle where conditions are met.
• Sell on signal reversal: Triggers the sell signal only on the final candle where conditions are met.

Filters & Bypass

• Volatility Filter: Enables a filter based on minimum and maximum volatility thresholds.
• External bypass source: Allows selection of another indicator to pause signals.
• TV Filter: Enables filtering based on the built-in technical ratings.

FAQ

How do I use this for backtesting? You can pair this script with external backtesting engines by selecting "External Signal" in your backtest script and choosing this indicator as the source.

What is the benefit of the Inverse Fisher Transform? The transform makes the indicator more "binary" or extreme, causing it to stay at the top or bottom of the range longer, which provides more distinct and timing-accurate signals for overbought and oversold conditions.

How can I access this indicator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.