The Inverse Fisher Transform by John F. Ehlers
How often have you been indecisive about entering
or exiting a trade? Here’s one way to get a clear
The purpose of technical indicators is to
help time your decisions to buy or sell.
Ideally, their signals should be clear
and unequivocal, but more often than not you will find yourself crossing your fingers
before pulling the trigger. Even if you have placed
only a few trades, you will have experienced this.
INVERSE FISHER TRANSFORM
In this article I will show you a way to program your
oscillator-type indicators to give clear, black-andwhite
indications of when to buy or sell. I will do this
by using the inverse Fisher transform to alter the probability distribution function
(PDF) of your indicators.
In the past, I have noted that the
PDF of price and indicators do not
have a Gaussian, or normal, probability
distribution. A Gaussian
PDF is the familiar bell-shaped
curve in which the long “tails”
mean that wide deviations from
the mean do not occur frequently.
The Fisher transform can be applied
to almost any normalized
dataset to make the resulting PDF
nearly Gaussian, with the result
that the turning points are sharply
peaked and easy to identify.