Ehler Fisher Transformation indicator tries to identify significant price reversals by normalizing prices over a user-specified number of periods. A reversal signal is suggested when the two lines cross.
Configuration Options
- Period: Number of bars to use in the calculations.
- Color Selectors: Colors to use for graph elements.
- Display Axis Label: Whether to display the most recent value on the Y axis.
Formula
[MidPoint = MP = frac{High – Low)}{2}]
[Intermediate = I = 2 times frac{MP – LowestLow_{n-periods}}{HighestHigh_{n-periods}-LowestLow_{n-periods}}]
The intermediate term I is then smoothed by a 5-period exponential moving average (EMA) then transformed to a log form (fisher transform) before a final 3-period exponential moving average (EMA) smoothing:
[I_{smoothed} = EMA_{5-period};of;I]
[EFT = EMA_{3-period};of;log left ( frac{1+I_{smoothed}}{1-I_{smoothed}} right )]