Imagine that there is a magical room and there is Bill the second. Every one minute, a different
version of Bill the first, comes out of this magical room and asks Bill the second if he
would like to buy or sell some apples at a certain price. The first version of Bill the
first asks Bill the second if he would like to buy or sell an apple for 1 dollar. Bill
the second who has no clue what's going on, declines the offer. Then another version of
Bill the first pops out of the magical room and offers to buy or sell an apple for 3 dollars.
This version of Bill the first is willing to trade an apple for 2 dollars more than
the previous Bill the first. Bill the second who still has no idea what's going on, declines
the offer, and another Bill the first pops out, then another, and another. Soon, Bill
the Second notices that different versions of Bill the first are looking to trade apples
at different prices. Some are looking to buy or sell as low as 1 dollar and some are willing
to buy or sell a single apple for 10 dollars. But most versions of Bill the first are trading
a single apple around 5 dollars. After noticing this, Bill the second comes
with an idea to get rich. When a version of Bill the first appears who is selling an apple
far away from the average, let's say for 1 dollar, Bill the second happily buys an apple.
Then, since he knows most versions of Bill the first are looking to trade an apple around
5 dollars, Bill the second can wait for Bill the first to appear who is willing to buy
an apple for 5 dollars or higher. Since the price stayed near the 5 dollars most of the
time, Bill the second made money by buying when the price made a move significantly lower
than the average and by selling when the price made a move significantly higher than the
average. In simple words, that's pretty much what the
Fisher Transform Indicator shows. Fisher Transform signals when the price has moved significantly
by looking at recent price data. If you want to make money like Bill the second by trading
when the price makes a significant move, the Fisher Transform Indicator is for you.
This is what it looks like on TradingView and will come with a default length of 9.
It will also come with two lines called the Fisher and the Trigger line.
Similar to Bill the first example, Fisher Transform can be used to find reversals. But
remember, unlike Bill the first example where versions of Bill the first were only buying
and selling between 1 dollar and 10 dollars, the Fisher Transform is unbounded.
It means that the Fisher Transform value can go in one direction for a long time.
In the range market, when the Fisher Transform goes significantly below the zero line, it
is a good idea to look for buying opportunities. Many traders also use the crossover of the
Fisher and Trigger lines to generate entry signals. When the Fisher Line crosses above
the Trigger Line below the zero line, it is a buy entry signal. When the Fisher Transform
goes significantly above the zero line in the range market, it is a good idea to look
for selling opportunities. Many traders will sell when the Fisher Line crosses below the
Trigger Line above the zero line. That's good for the range market, but in an
up-trending market, the Fisher Transform will give a lot of false short entry signals since
the previous extreme highs are easily crossed. Similarly, there will be a lot of false long
entry signals when the price is breaking the previous swing low in a downtrend.
So when the price is above the 200 EMA, many traders will only look for long signals and
will buy when the Fisher Line gives a long crossover below the zero line. Set the stoploss
below the pullback. And when the price is below the 200 EMA, many traders will sell
when the Fisher Line gives a short crossover above the zero line. Set the stoploss above
the pullback. We will test this Fisher Transform Trading
Strategy 100 times in the next video to find its win rate and to see how it compares with
other trading strategies we have tested so far on the Trading Rush Channel.