True Strength Index Stock Indices Analysis and TSI Signals

True Trend Indicator

Developed by William Blau

True Strength Index is a momentum indicator. The TSI is drawn by using a momentum calculation that reacts faster and is more responsive to stock price changes, making it a leading indicator that follows price action direction closely in the market.

The True Strength Index is drawn as a blue line, the indicator also plots a signal line which is drawn as a red line, and these two lines are used to generate crossover signals.

True Strength Index also plots a histogram which shows the difference between the TSI Line and the Signal line. This histogram crosses above or below the center lines, histogram levels above the center line shows a bullish crossover signal, while center line levels below the center line shows a bearish crossover signal.

Indices Analysis and Generating Signals

The TSI uses various methods to generate stock signals. This stock indicator can be used in the same way as the RSI to determine general trend direction of the markets. Overbought and oversold levels can also be shown using TSI. The most common methods of generating trading signals are:

Zero line Indices Trading Cross Over ( Histogram Indices Trading crossover not Lines Stock Indices Trading crossover)

• Buy - when the histogram crosses above the 0 a buy is generated
• Sell - when the histogram crosses below 0 a sell is generated

Trading Signal line Indices Trading Crossover

• A buy is generated when TSI line crosses above the Signal Line
• A sell is generated when TSI line crosses below Signal-line

This signal is the same as the one above and the timing corresponds to the time when the histogram crossovers happen.

Divergence Stock Indices

Divergence is used to look for potential stock trend reversal point of a stock indices. Reversal divergence setups are:

Classic Indices Trading Divergence

Stock Indices Classic Bullish Divergence: Lower lows in stock price and higher lows on the indicator

Stock Indices Classic Bearish Divergence: Higher highs in stock price and lower highs on the indicator

Divergence trading can also be used in identifying potential stock trend continuation points in stock price action direction. The continuation divergence trading setups are:

Hidden Indices Trading Divergence Setup

Stock Indices Hidden Bullish Divergence: higher lows in stock price and lower lows on the indicator

Stock Indices Hidden Bearish Divergence: lower highs in stock price and higher highs on the indicator

Overbought/Oversold Levels on Indicator

This can be used to identify overbought and oversold conditions in stock price action movements.

• Overbought condition - levels being greater than the +25 level
• Oversold condition - levels being less than the -25 level

Trades can be generated when the TSI crosses these levels.

Buy signal - when the levels cross above -25 level a buy is generated.

Sell signal - when the areas cross below +25 level a sell is generated.

Oversold

Overbought

The overbought/oversold levels are indicated using horizontal lines drawn at the +25 and -25 levels.