Inverse Fisher Transform RSI

Parameters: period = 14 (2–200)

Overview

The Inverse Fisher Transform RSI (IFT-RSI) is an enhanced version of the traditional RSI that applies the inverse Fisher transform (hyperbolic tangent function) to create a more responsive oscillator. Developed by John Ehlers and published in Technical Analysis of Stocks and Commodities magazine in May 2004, this transformation converts the RSI's smooth oscillations into sharp, almost binary-like movements that make market turning points much easier to identify.

The inverse Fisher transform has the mathematical property of compressing values near the extremes and expanding values near the center, resulting in an indicator with a very high probability of being either +1 or -1. This bipolar probability distribution creates clearer signals than traditional RSI, making overbought/oversold conditions immediately apparent and reducing false signals that often plague standard oscillators.

Interpretation & Trading Signals

Signal Levels:

  • Above +0.5: Overbought condition, potential sell opportunity
  • Below -0.5: Oversold condition, potential buy opportunity
  • Near +1: Extreme overbought, strong bearish reversal likely
  • Near -1: Extreme oversold, strong bullish reversal likely

Trading Signals:

  • Buy Signal: IFT-RSI crosses above -0.5 from below (oversold exit)
  • Sell Signal: IFT-RSI crosses below +0.5 from above (overbought exit)
  • Zero Line Cross: Bullish above 0, bearish below 0 (momentum shift)
  • Rapid Transitions: Sharp moves between extremes signal strong reversals

Key Advantages:

  • Binary-Like Output: Clear +1/-1 signals reduce interpretation ambiguity
  • Enhanced Responsiveness: Faster reaction to price changes than standard RSI
  • Noise Reduction: Transform smooths out minor fluctuations
  • Works with Any Oscillator: Can be applied to other indicators beyond RSI

Example Usage

Code examples will be available once the Rust implementation is complete.

Performance Analysis

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