Technical Indicators: F (part 2)
Fisher Transform
The Fisher Transform indicator attempts to be a major turning point indicator and is based on John Ehlers' November 2002 Stocks and Commodities Magazine article, "Using The Fisher Transform."
With distinct turning points and a rapid response time, the Fisher Transform uses the assumption that while prices do not have a normal or Gaussian probability density function (that familiar bell-shaped curve), you can create a nearly Gaussian probability density function by normalizing price (or an indicator such as RSI) and applying the Fisher Transform. Use the resulting peak swings to clearly identify price reversals.
Force Index
Developed by Dr. Alexander Elder, the Force Index combines price movements and volume to measure the market. Unmodified Force Index results can be rather erratic, better results are achieved by smoothing with an moving average. A 2-day exponential moving average of the Force Index may be used to track the strength of buyers and sellers in the short term while a 13-day exponential moving average better measures the strength of intermediate cycles.
If the Force Index is above zero Elder would say, "the bulls are in control." A negative Force Index would then signal that "the bears are in control." If the Index remains close to zero neither side has control and no strong trends exist.
The greater the distance from zero, the stronger the signal. If the Force Index flattens out it indicates that either volumes are falling or large volumes have failed to significantly move prices. Either situation is likely to precede a reversal.
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Forecast Oscillator
Developed by Tushar Chande, the Forecast Oscillator is is an extension of the linear regression based indicators. It is a percentage comparison of the price of an issue and the price as indicated by the Time Series Forecast Oscillator.
The oscillator is above zero when the forecast price is greater than the actual price. Conversely, it's less than zero if its below. When the forecast price and the actual price are the same the oscillator would plot as zero.
Prices that are persistently below the forecast price suggest lower prices ahead. Actual prices that are persistently above the forecast price suggest higher prices ahead.
It is calculated as follows:
(Close - Previous Time Series Forecast) * 100 / (Close)
Four Percent Model
Developed by Ned Davis, the Four Percent Model is an easy to calculate and easy to analyze market timing tool utilizing the weekly close of the Value Line Composite Index.
A buy signal is generated when the index rises at least four percent from a previous value. A sell signal is generated when the index falls at least four percent.
Utilizing this approach to the stock market during the period from 1993 to 1998 would have a return of 241% versus the buy-and-hold approach which provided a return of 120%.
The Four Percent Model was developed by Ned Davis and popularized in Martin Zweig's book Winning on Wall Street.
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