True Strength Index Stock Analysis & TSI Trading Signals

True 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 price changes, making it a leading indicator that follows stocks price action direction closely in the 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.

Trading Analysis & Generating Signals

The TSI uses various methods to generate signals. This 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 signals are:

Zero line Trading Cross Over (Histogram 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

Trading Signal line 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 Trading

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

Classic Divergence

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

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

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

Hidden Trading Divergence Setup

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

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

Overbought/Oversold Levels on Indicator

This can be used to identify overbought & oversold conditions in 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 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 Signal

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