True Strength Index Stock Analysis & TSI Trading Signals

True Stocks Trend Indicator

Developed by William Blau

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

The TSI is drawn as a blue-line, the indicator also plots a signal line which is drawn as a redline, and these two lines are used to generate cross-over signals.

TSI also plots a histogram which shows the difference between the TSI Line & 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 cross-over signal.

Stock Trading Analysis & Generating Trading Signals

The TSI uses various methods to generate trading signals. This stock indicator can be used in the same way as the RSI to determine general stock 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 Stocks Trading Crossover (Histogram Stock Trading crossover not Lines Stocks Trading crossover )

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

Stocks Trading Signal line Stock Trading Crossover

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

This signal is the same as the one above & the timing corresponds to the time when the histogram cross-overs happen.

Divergence Stocks Trading

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

Classic Stock Trading Divergence

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

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

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

Hidden Stocks Trading Divergence Setup

Stock Trading Hidden Bullish Divergence: higher lows in stocks price and lower lows on the indicator

Stock Trading Hidden Bearish Divergence: lower highs in stocks price and higher highs on the indicator

Overbought/Oversold Levels on Technical Indicator

This can be used to identify overbought & over-sold 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 TSI crosses these levels.

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

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

Oversold - Buy Trading Signal

Overbought - Sell Trading Signal

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