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> He also talks about another plot: "I multiplied the rate of change
> of the Fisher Transform by 10 and plotted this amplified rate of
> change over the Fisher transform." The crossings show turning
> points.
>
> However, I have not been able to duplicate the ROC plot correctly.
> In Trader's Tips, the MetaStock code is simply given as:
> 10*ROC(fish,1,$)
> I've tried a few variations including:
> Plot4(10*RateOfChange(fish, 1));
> but they simply create spikes consisting of very large numbers.
I haven't seen the article, nor do I know the exact definition of
the Metastock ROC function. But I can tell you why you're
getting large spikes when you use ROC (RateOfChange on TS2001i).
RateOfChange is defined as Price / Price[Length] - 1. That
generally works fine when you're using actual price values. But
the Fisher transform you're passing to it crosses through zero --
sometimes very close. When Price[Length] is very near zero, the
resulting ROC calculation is a huge number.
You could try using Momentum instead of RateOfChange. Momentum
is Price - Price[Length]. No division-by-zero problems. But it
doesn't look like a particularly good signal line to show turning
points.
This Fisher transform is kind of odd. Looking at the code,
Value1 is just a smoothed Stochastic re-centered around zero.
Then he takes log((1+Value1)/(1-Value1)) and smooths that. I'm
not sure what the log calculation is supposed to accomplish. It
basically just amplifies the smoothed stochastic, exaggerating
the points where the stoch approaches +/- 1. He pegs the extreme
values of value1 at +/- 0.99, which ends up limiting the Fisher
value to +/- 5.29. Why? Beats me. Guess he wanted to make it
really obvious when the stoch value was approaching its max/min
values.
Gary
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