TRADING MANUAL - True Strength Index indicator, How To Use It and Free To Download
Developed by William Blau
True Strength Index (TSI) indicator is a momentum indicator. The TSI is plotted 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 foreign exchange trading market.
The True Strength Index (TSI) indicator is plotted as a blue line, the indicator also plots a signal line which is plotted as a red line, and these two lines are used to generate crossover signals.
TSI also plots a histogram which shows the difference between the TSI Line and the Signal line. This histogram crosses above or below the centerlines, histogram levels above the centerline shows a bullish crossover signal, while centerline levels below the centerline shows a bearish crossover signal
Technical Analysis of True Strength Index (TSI) Technical Indicator
The TSI uses various methods to generate Forex trading signals. The TSI indicator can be used in the same way as the RSI indicator to determine general trend direction of the Forex markets. Overbought and oversold levels can also be shown using this technical indicator. The most common methods of generating trading signals are:
Zero line Crossover (Histogram crossover not Lines crossover)- Buy Signal- when the TSI histogram crosses above 0 a buy signal is generated
- Sell Signal- when the TSI histogram crosses below 0 a sell signal is generated
TSI Signal line Crossover
- A buy signal is generated when the TSI line crosses above the Signal line
- A sell signal 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 Trading
Divergence trading is used to look for
potential trend reversal point of a currency pair. The reversal
divergence trading setups are:
Classic Divergence/Regular Divergence
Classic Bullish Divergence: Lower lows in price and higher lows on the TSI indicator
Classic Bearish Divergence: Higher highs in price and lower highs on the TSI indicator
Divergence trading can also be used in identifying potential trend continuation points in price action direction. The continuation divergence trading setups are:
Hidden Divergence
Hidden Bullish Divergence: higher lows in price and lower lows in TSI indicator
Hidden Bearish Divergence: lower highs in price and higher highs in TSI indicator
Divergence Trading Setups
Overbought/Oversold Levels
The TSI indicator can be used to identify overbought and oversold conditions in price action movements.
- Overbought condition - TSI levels being greater than the +25 level
- Oversold condition- TSI levels being less than the -25 level
Trades can be generated when the TSI crosses these levels.
Buy signal- when the TSI indicator crosses above -25 level a buy signal is given.
Sell signal- when the TSI indicator crosses below +25 level a sell signal is given.
Free To Download - go here to download this indicator for free as source code
