True Strength Index (TSI) Technical Analysis & TSI Signals
Trend Strength Indicator - True Trend Indicator
Created by William Blau
True Strength Index is a momentum trading indicator. The TSI is plotted by using a momentum calculation that reacts faster & is more responsive to price changes, making it a leading indicator that follows price action direction closely in the forex market.
The True Strength Index is drawn as a blue line, the trading indicator also draws a signalline which is plotted as a red line, & these two lines are used to generate cross-over signals.
TSI also plots a histogram which illustrates the difference between the TSI Line & the Signal line. This histo-gram crosses above or below the centerline, histo-gram levels above the centerline shows a bullish cross over signal, while centerline levels below the center-line shows bearish crossover signal.
Technical Analysis & How to Generate Signals
The TSI uses various different methods to generate trade signals. This indicator can be used in the same way as the RSI to determine general trend direction of the currency markets. Overbought & over-sold levels also can be shown using TSI. The most common methods of generating trading signals are:
Zero line Trading Crossover (Histogram FX cross-over not Lines Trading crossover )
- Buy - when the histogram crosses above 0 a buy signal gets generated
- Sell - when the histogram crosses below the 0 a sell signal is generated
Signal line Trading Cross-over
- A buy gets generated when TSI line crosses above Signal Line
- A sell is generated when TSI line crosses below the Signal Line
This signal is the same as the one above and 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 a currency pair. Reversal divergence setups are:
Classic Trading Divergence
Classic Bullish Divergence: Lower lows in price and higher lows on the technical indicator
Classic Bearish Divergence: Higher highs in price and lower highs on the trading indicator
Divergence trading also can be used in identifying potential trend continuation points in price action direction. The continuation divergence setups are:
Hidden Trading Divergence
Hidden Bullish Divergence: higher lows in price and lower lows on the technical indicator
Hidden Bearish Divergence: lower highs in price & higher highs on the trading indicator
Overbought/Over-sold Levels on Trading Indicator
This can be used to identify overbought & over-sold conditions in price action movements.
- Overbought condition - levels being greater than the +25 level
- Over-sold condition - levels being less than the -25 level
Trades can be generated when TSI crosses these levels.
Buy trade signal - when the levels cross above -25 level a buy gets generated.
Sell trade signal - when the areas cross below +25 level a sell signal is generated.
Oversold - Buy Trading Signal
Overbought - Sell Trading Signal
The overbought/oversold levels are indicated using horizontal lines plotted at the +25 and -25 levels.
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