Who will win the tug of war, bulls or bears? This tool will let you know who is in control.
This week we are going to dive into the indicators I rely on to find, place, and manage trades to provide the greatest opportunity for profits.
True Strength Indicator
Stockcharts.com provides a great definition of the True Strength Index (TSI), which is an oscillator that fluctuates between positive and negative territory. As with many momentum oscillators, the centerline defines the overall bias. The bulls have the momentum edge when TSI is positive, and the bears have the edge when it’s negative.
As with PPO, a signal line can be applied to identify upturns and downturns. Signal line crossovers are, however, quite frequent and require further filtering with other techniques. Chart readers can also look for bullish and bearish divergences to anticipate trend reversals; however, keep in mind that divergences can be misleading in a strong trend.
TSI is somewhat unique because it tracks the underlying price quite well. In other words, the oscillator can capture a sustained move in one direction or the other. The peaks and troughs in the oscillator often match the peaks and troughs in price. In this regard, chart readers can draw trend lines and mark support/resistance levels using TSI. Line breaks as well as line crosses can then be used to generate signals.
This older chart is a great example of how useful TSI is. A cross up through the TSI red signal is bullish, in that it is suggesting price has gone from bearish to bullish. A cross down through the red line suggests price is bearish. If you want to learn more about the TSI, you can read through the short section below, or you can scroll down to the alert signal.
Knowing who is winning the tug of war can help you confirm you are trading with the winning team. I find that TSI works exceptionally well as a part of my approach to trading SPY, the ETF that tracks the S&P 500. It has great liquidity (meaning trades execute efficiently) and also trades in significant volume.
My SMART Paycheck program takes advantage of how effective TSI is when trading SPY to spot trades no matter who is currently in control. You can get more information on it here.
Yours for a prosperous future,