True Strength Index Stock Indices Technical Analysis and TSI Stock Indices Signals
True Stock Indices Trading 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 index price changes, making it a leading indicator that follows stock index price action direction closely in the stock index 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.
Stock Indices Technical Analysis and Generating Stock Indices Signals
The TSI uses various methods to generate stock indices signals. This stock indices indicator can be used in the same way as the RSI to determine general stock indices trend direction of the stock indices markets. Overbought and oversold levels can also be shown using TSI. The most common methods of generating trading signals are:
Zero line Crossover (Histogram crossover not Lines crossover)
- Buy - when the histogram crosses above 0 a buy is generated
- Sell - when the histogram crosses below 0 a sell is generated
Signal line Crossover
- A buy is generated when the TSI line crosses above the Signal line
- A sell is generated when the 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 crossovers happen.
Divergence Stock Indices
Divergence is used to look for potential stock indices trend reversal point of a stock indices. The reversal divergence setups are:
Stock Indices Classic Bullish Divergence: Lower lows in stock index price and higher lows on the indicator
Stock Indices Classic Bearish Divergence: Higher highs in stock index price and lower highs on the indicator
Divergence trading can also be used in identifying potential stock indices trend continuation points in stock index price action direction. The continuation divergence trading setups are:
Stock Indices Hidden Bullish Divergence: higher lows in stock index price and lower lows on the indicator
Stock Indices Hidden Bearish Divergence: lower highs in stock index price and higher highs on the indicator
This can be used to identify overbought and oversold conditions in stock index 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 levels cross below +25 level a sell is generated.
The overbought/oversold levels are indicated using horizontal lines drawn at the +25 and -25 levels.