Forex volume and the Fisher Bulls/Bears Indicator

Volume in the Forex market is not measured like the familiar method of the stock market. In my opinion, anything associated with volume is useless.

The next best thing is bulls/bears measurement. This can be done in a variety of ways, but I will mention 3 most common. The first is the bulls/bears indicator. This indicator is not very user friendly and I do not recommend it. The next is an mt4 product called the sefc indicator. It is a box system that changes color according to buying or selling behavior. It will adjust, or repaint, quite often, and is therefore useless for actual trading. Looks awesome in history though:)

My recommendation is to use the data of the sefc indicator as a histogram, with a line graph installed on top of it. The most common histogram of this data is called a fisher yurik indicator. There are some important things to know about this indicator though. First, you will likely see alot of complaints about it because it will adjust to market conditions just like the sefc. Traders call that repainting and it can be annoying to be fooled by your indicator, particularly because a "repaint" means you are losing the trade. Second though, and most importantly, for whatever reason, the formula in the indicator has been altered. I don't know if someone thought they knew what they were doing, or if it was intentional, but the math is wrong. The indicator was meant to be associated with standard deviation and based on 10 periods. Of course you can change the periods, but you have to keep the standard deviation formula intact!! DUH!! If you download it from the internet, be sure to get the version that ends in mq4. Once you have loaded it to your mt4, find it in your custom indicators folder and right click on it. Then click modify. Scroll down until you see this formula:

Value = 0.33*2*((price-MinL)/(MaxH-MinL)-0.5) + 0.67*Value1;    
      Value=MathMin(MathMax(Value,-0.999),0.999);
      ExtBuffer0[i]=0.5*MathLog((1+Value)/(1-Value))+0.5*Fish1;

Change it to look like this:

Value = 0.5*2*((price-MinL)/(MaxH-MinL)-0.5) + 0.5*Value1;    
      Value=MathMin(MathMax(Value,-0.999),0.999);
      ExtBuffer0[i]=0.25*MathLog((1+Value)/(1-Value))+0.5*Fish1;

The indicator will still adjust to market movement and "repaint", but it is much more stable. If it were me, I would change the fisher period to 5. Then I would put a 5 period, deviation 1 bollinger band on top of the fisher. Then I would add a 5 period SMA of a different color. This will change the color of the median line of the bollinger band and show crossovers. While the upper and lower limits are not exactly the same as a 1 period SMA, they are close enough. Now you have a fast acting fisher to possibly give you some advance notice of changes in direction, and with the 5 period bollinger band and moving average you also have a 10 period fisher at the same time. The crossover of the 5 period moving average equates to a 10 period fisher. While I would not use this as stand-alone indicator, I think you will find it helpful in determining price direction.

Next I would experiment with the sister indicator called Fisher Transform. Once again, check the math and make sure it is 0.5 and 0.25 in the appropriate places. While the optimal period setting is 10, I think you will like 8:)

These are not really tradable indicators, but will help you see the flow of the market and can help you validate your entries and exits. If you decide to use their signals, be sure to have some other type of indicator to confirm it. Of course you can always chance it. If you use an 8 period fisher you will outperform the latest robot from Rita Lasker, lol, but that doesn't mean it is foolproof. A signal is not always a signal because consolidation can cause exaggerated movement of indicators.