Hello,
Can you please tell me how a fisher chart differs from a traditional chart?
Certainly! To understand how a fisher chart differs from a traditional chart, let's break it down step by step:
1. Define a traditional chart:
- A traditional chart, also known as a standard or regular chart, is a graphical representation of data or information. It typically consists of a grid with vertical and horizontal axes, where the horizontal axis represents the categories or variables being measured and the vertical axis represents the scale or values of those variables. Data points are plotted on the chart to show their relationship or trends.
2. Define a fisher chart:
- A fisher chart is a variation of the traditional chart that is specifically designed to analyze stock market data. It was created by the technical analyst J. F. Ehlers and popularized by John Person. The fisher chart is based on the Fisher Transform indicator, which is used to identify potential reversals in stock prices.
Now, let's look at the main differences between a fisher chart and a traditional chart:
1. Calculation and interpretation of data:
- In a traditional chart, data points are plotted based on their actual values. For example, in a line chart, each data point is plotted at its specific value on the vertical axis. The interpretation of the data relies on the patterns observed, such as upward or downward trends, support and resistance levels, and other technical analysis techniques.
- In a fisher chart, the Fisher Transform indicator is applied to the price data to create transformed values. These transformed values are then plotted on the vertical axis. The Fisher Transform indicator is designed to normalize the distribution of price values, making it easier to identify potential reversals or turning points in the stock price. The interpretation of the fisher chart is primarily focused on detecting these reversals.
2. Scale and axis representation:
- Traditional charts often use linear scales for both the vertical and horizontal axes. This means that equal distances along the axis represent equal differences in the underlying data. For example, in a bar chart, each bar represents a fixed range of values.
- In fisher charts, the scale of the vertical axis is commonly non-linear. This non-linear scale is based on the Fisher Transform indicator's formula, which compresses the data to highlight turning points. As a result, the plotted values on the fisher chart may not directly correspond to the actual price values but are instead transformed values.
3. Application and focus:
- Traditional charts are widely used for various purposes, such as tracking historical data, visualizing trends, and identifying support and resistance levels. They can be applied to a wide range of data types, including financial data, scientific data, and more.
- Fisher charts, on the other hand, are specifically designed for technical analysis in stock market trading. They are primarily used to identify potential reversals in stock prices and assist traders in making decisions regarding entry and exit points.
In summary, a fisher chart differs from a traditional chart in terms of the data interpretation, the use of the Fisher Transform indicator, the scale of the vertical axis, and its specific application in stock market analysis.