True Strength Index (TSI)
Candlefocus EditorThe TSI oscillates between positive and negative territories. A value of 0 marks the break-even point. Positive territory signifies that the bulls are more in control of the asset while negative territory implies that the bears have a more significant power over it.
When the TSI indicator diverges from the price, it may be sending a signal to the investor that the current trend of the asset is weakening and may be reversing soon. To better interpret the signals given off by the TSI, a separate signal line can be applied on the indicator which helps the trader identify when a crossover might be occuring. If the TSI crosses above the signal line it can be taken as a buy signal and when it crosses below the signal line, it can be interpreted as a sell signal. Caution needs to be exercised as such crossovers may occur frequently.
Overbought and oversold levels on the TSI also vary according to the particular asset being traded. The asset’s previously established market pattern needs to be taken into account in order to properly determine these levels.
The TSI is a great indicator for investors and traders as it not only helps to identify price momentum and trend of the market but also signals possible divergences and reversals. Its use can be combined with other forms of technical analysis to better determine entry and exit points in a particular market. Furthermore, the signal line helps traders stay ahead of the game on possible crossovers.