Forex Fisher 2 Moving Averages

The Forex Fisher 2 Moving Averages indicator transforms price extremes into a normalized oscillator and utilizes dual moving average smoothing to help traders pinpoint trend reversals and momentum shifts.

Usage

The Usage section describes how the script can be used to identify market conditions and potential trade entries. The indicator operates as a bottom-pane oscillator, providing visual cues through a histogram and two signal lines.

• Trend Identification: The Fisher Coefficient histogram oscillates around a zero line. Values above zero generally suggest bullish momentum, while values below zero indicate bearish momentum.
• Signal Crossovers: The tool generates signals similar to a MACD. A primary signal is generated when the Fast MA (Simple Moving Average) crosses the Slow MA (Weighted Moving Average).
  • Bullish Signal: Occurs when the Fast MA crosses above the Slow MA.
  • Bearish Signal: Occurs when the Fast MA crosses below the Slow MA.
• Mean Reversion: Because the Fisher Transform creates a Gaussian probability distribution, extreme values in the oscillator can indicate overextended market conditions where a reversal may be imminent.

Users can adjust the lookback period and moving average lengths to suit different timeframes. Shorter lengths increase sensitivity for scalp trading, while longer lengths filter out noise for swing trading.

Details

The Forex Fisher 2 Moving Averages is based on a concept originally shared on ProRealCode by user Nicolas. It utilizes the Fisher Transform, a mathematical process used to convert price data into a Gaussian probability distribution. This makes the turning points in the market much sharper and easier to identify compared to standard oscillators.

The script execution follows these steps:

1. Normalization: The current price is evaluated relative to the highest high and lowest low of a specified lookback period (default 10).
2. Smoothing: This value is smoothed and clamped to prevent mathematical errors during the transformation.
3. Fisher Transform: The Fisher formula is applied to the smoothed value to create the "Fish" coefficient.
4. Signal Lines: A Simple Moving Average (SMA) is applied to the Fisher value to create the "Fast" line. A Weighted Moving Average (WMA) is then applied to the SMA to create the "Slow" signal line, providing a secondary layer of trend filtering.

Settings

• Length: Determines the lookback period for the highest high and lowest low price calculations.
• Fast MA Length: Sets the period for the Simple Moving Average (SMA) applied to the Fisher Transform value.
• Slow MA Length: Sets the period for the Weighted Moving Average (WMA) used as the slower signal line.

FAQ

How do I interpret the color changes in the histogram? The histogram changes color based on whether the Fisher coefficient is above or below the zero line. Green indicates positive momentum, while red indicates negative momentum.

Does this indicator provide alerts for crossovers? Yes, the indicator includes built-in alert conditions for both bullish (cross up) and bearish (cross down) signals between the Fast and Slow moving averages.

How can I access the Forex Fisher 2 Moving Averages? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.