TSI Indices Technical Analysis & TSI Trading Signals

Indices Trend Strength 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 price action direction closely in the trading 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 the 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.

Indices Technical Analysis & How to Generate Signals

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

Zero line Crossover ( Histogram crossover not Lines Stock Indices crossover)

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

Stock Signal line Crossover

• 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 & 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 indices. Reversal divergence setups are:

Classic Indices Divergence

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

Indices 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 trading setups are:

Hidden Stock Divergence Setup

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

Indices 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 and 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 levels cross above -25 level a buy gets generated.

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

Oversold - Buy Signal

Overbought - Sell Trading Signal

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