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