Fisher Transform Trend Navigator [QuantAlgo]

🟢 Overview

The Fisher Transform Trend Navigator applies a logarithmic transformation to normalize price data into a Gaussian distribution, then combines this with volatility-adaptive thresholds to create a trend detection system. This mathematical approach helps traders identify high-probability trend changes and reversal points while filtering market noise in the ever-changing volatility conditions.

🟢 How It Works

The indicator's foundation begins with price normalization, where recent price action is scaled to a bounded range between -1 and +1:

highestHigh = ta.highest(priceSource, fisherPeriod)
lowestLow = ta.lowest(priceSource, fisherPeriod)

value1 = highestHigh != lowestLow ? 2 * (priceSource - lowestLow) / (highestHigh - lowestLow) - 1 : 0
value1 := math.max(-0.999, math.min(0.999, value1))

This normalized value then passes through the Fisher Transform calculation, which applies a logarithmic function to convert the data into a Gaussian normal distribution that naturally amplifies price extremes and turning points:

fisherTransform = 0.5 * math.log((1 + value1) / (1 - value1))
smoothedFisher = ta.ema(fisherTransform, fisherSmoothing)

The smoothed Fisher signal is then integrated with an exponential moving average to create a hybrid trend line that balances statistical precision with price-following behavior:

baseTrend = ta.ema(close, basePeriod)
fisherAdjustment = smoothedFisher * fisherSensitivity * close
fisherTrend = baseTrend + fisherAdjustment

To filter out false signals and adapt to market conditions, the system calculates dynamic threshold bands using volatility measurements:

dynamicRange = ta.atr(volatilityPeriod)
threshold = dynamicRange * volatilityMultiplier

upperThreshold = fisherTrend + threshold
lowerThreshold = fisherTrend - threshold

When price momentum pushes through these thresholds, the trend line locks onto the new level and maintains direction until the opposite threshold is breached:

if upperThreshold < trendLine
    trendLine := upperThreshold
if lowerThreshold > trendLine
    trendLine := lowerThreshold

🟢 Signal Interpretation

• Bullish Candles (Green): indicate normalized price distribution favoring bulls with sustained buying momentum = Long/Buy opportunities
  
• Bearish Candles (Red): indicate normalized price distribution favoring bears with sustained selling pressure = Short/Sell opportunities
  
• Upper Band Zone: Area above middle level indicating statistically elevated trend strength with potential overbought conditions approaching mean reversion zones
  
• Lower Band Zone: Area below middle level indicating statistically depressed trend strength with potential oversold conditions approaching mean reversion zones
  
• Built-in Alert System: Automated notifications trigger when bullish or bearish states change, allowing you to act on significant developments without constantly monitoring the charts
  
• Candle Coloring: Optional feature applies trend colors to price bars for visual consistency and clarity
  
• Configuration Presets: Three parameter sets available - Default (balanced settings), Scalping (faster response with higher sensitivity), and Swing Trading (slower response with enhanced smoothing)
  
• Color Customization: Four color schemes including Classic, Aqua, Cosmic, and Custom options for personalized chart aesthetics