TSI (True Strength Index) Indicator Explained and How to Use It -- with David Moadel
hello and welcome to looking at the markets with David Modell TSI true
strength index indicator I'm going to give you a basic overview of what it is
and some ways that you might want to use it and if you want more coaching if you
want individualized to help with your trading your investing technical
indicators or putting together a plan for your trading or investing because
you really should have a plan if you want to be successful at this long term
you can email me for the coaching at David Modell at gmail.com so let's take
a look at the true strength index and we're going to look at the chart in a
moment but first what is it the true strength index or TSI is a momentum
oscillator and by oscillator what we mean is it moves up and down and up and
down while within boundaries it does not go above a certain boundary does not go
below a certain boundary and momentum oscillator tells you the trend the
momentum is it to the upside or to the downside generally and so it's a
momentum oscillator momentum oscillator that ranges between the limits of
negative 100 on the bottom and positive 100 on the top all right so it
oscillates between those two numbers and the midline or the base value is zero
the momentum is positive when the oscillator is positive when it's above
zero and it's negative momentum when the TSI line is below zero or a negative
number okay pretty simple so let's let's take a look at that we're gonna go on
trading view dot-com and here is the daily candlestick chart for Carnival and
it is CCL in case you're wondering but you can use this on pretty much any time
frame it can tell you the momentum whether it's daily candlesticks or
1-minute candlesticks two three four five minute candlesticks hourly weekly
monthly whatever it is this this is a pretty good indicator telling you the
overall momentum it's not perfect no indicator is perfect it does not work
100% of the time all right so we can see that it has
first let's just look at the blue line right now that is the TSI line all right
and so we can see it is fairly smooth it's not super jagged or jerky so if you
want something that's already pretty smoothed out this can be the blue line
that you can use okay we're going to talk about the pink the pink line soon
all right and it is a pretty good gauge the blue line of the momentum I mean we
can see here's the zero okay here's the midline the base right okay and then we
can see you know we can see positive for D up here negative forty down here but
remember it goes down to negative one hundred and it could go all the way up
to positive Andre all right but we can see when the blue line is
trending downward and also when it's below zero and look at that so at the
same time the stock is trending downward all right and it's it's going lower the
the number is going lowered lower into negative territory and it's it's below
zero it's below the midline and that's a pretty good gauge right now of the
momentum which is downward okay and so what about what about upwards well we
can see it works going upwards as well still not above zero here though let me
try to find an example of going there it is going above zero look at the blue
line it was below zero but now going above it and so when that happens you
can say there's a change in the momentum from negative to potentially positive
and you know it worked pretty well here because after when above zero went
sideways for a while but then BOOM right went upwards and we can see that the the
number went higher went above 40 all right
so but again you know I did hear it is going down to negative 60 so again the e
bounds are 100 and negative 100 okay so that's the blue line that's the TSI line
what what about the other line though let's talk about it there's a TSI line
that was blue and it has a signal line that was pink we'll look at that again
in a moment and this is similar to the MACD line
which I talked about in my MACD video so you can check that out you can check out
all my technical indicator videos on my playlist for that yeah them just like
the MACD line and the signal line right you maybe you've seen those well we have
a TSI line and it also has a signal line the TSI line itself is smoothed out
multiple times alright we saw how you know that even the blue line is not very
jagged or jerky alright it's already pretty smooth and you can adjust how
smooth doubt it is alright if you want that blue line to be even smoother even
less jerky you can adjust that here on on tradingview comm if you want to for
most beginners you might just consider starting out simple and just keeping it
on the default settings if you want to alright but you can also play around the
settings just to see what happens test it out maybe with demo trading or
something like that where there's no real money involved
now the signal line which was pink is a smoothing out of the TSI line which has
already smoothed out and so let's look at the signal line in pink yeah you see
how the signal line the pink line is even smoother it's even less jerky and
less volatile than the already smoothed out blue line TSI line right so and they
use you know moving averages they use averages and things like that to smooth
everything out alright so you got your TSI line and blue signal line and pink
at least it is right now your platform might have different colors and things
like that so how can you use all of this well much like with stochastics and the
MACD you can use the TSI to gauge certain things like oversold for example
you might decide that if the TSI line or the signal line either one but let's say
the TSI line for now the blue one let's say if it goes below 40 you might decide
that that the stock is is oversold meaning cheap you know maybe it's a
bargain even and so you wait for it to go let's say below 40 it's not doing it
here but it did it here see it went below or
I should say May a below negative 40 is what I meant to say below negative 40
right or overbought you know like expensive so that could be maybe wait
until it goes above positive 40 okay and so you just you just wait for that to
happen and it's still negative here so it hasn't happened here let me try to
find an example of it going above positive 40 here it is interesting the
the TSI line went above 40 barely but the signal line did not signal line did
not catch up as quickly okay and yeah that actually turned out to be a good
indicator because it formed a double top there and then it tanked it plummeted
after that so that worked out pretty well
but it does not work 100% of the time it's not perfect so you could use it for
overbought oversold you might choose 40 and negative 40 or 50 negative 50 30
whatever you like you can use it for center line crossovers okay so if the
let's say the TSI line the blue one if it's you know if it's above zero and
then goes negative goes below zero that could be a sign a signal that the
momentum has changed maybe you want to get out of your trade take profits you
could have taken profits when that happened here and you would have you
would have avoided all this downside here okay and and maybe the opposite if
it's a you know below let's say it's the TSI line is below zero then pops above
it right so you buy it right at that moment and then write it up that kind of
thing okay that's another possibility these are all possibilities
so that's center line crossovers signal line crossovers you might see this in
the MACD where if the the blue line here if the TSI line is below but then pops
above the signal line that could be a buy signal possibly and then a sell
signal might be if it's a if the TSI line is above but then goes down below
the signal line that could be a sell signal
that kind of thing okay so signal line crossovers with the TSI Highline and
signal line divergences if you've got the the TSI line or the signal line
either one going in one direction but then the candlesticks are going in a
different direction you might think that perhaps the TSI line is telling the
truth so to speak maybe the candles are you know not maybe
they're trying to deceive you okay on the other hand sometimes people say you
know the price doesn't lie right so you can believe whichever one you want but
sometimes people talk about RSI divergences and I have videos on RSI
divergences where the price goes in one direction but the RSI line goes in a
different direction that kind of thing all right those are some ways to
consider using it you have to make your own decisions but that is a basic
overview of the true strength index I did not go over the formula for it
because it's complicated and I don't know if you really need to know the
formula you could always look that up of course and I just found that you don't
always need to understand every part of the formula what you can do is try
fiddling with the or adjusting testing out different settings see how they
change things and then maybe maybe demo trade it to see if it works better or
worse for you okay and and finally you want to have a plan you don't just want
to use an oscillator you don't want to use just an indicator by itself probably
not without an overall trading or investing plan you can email me for that
coaching at David Modell at email sorry gmail.com and I hope this was helpful to
you and I'm gonna keep on bringing you more videos and check out my playlist
because I have right now over a hundred videos in my technical indicators
playlist I've covered almost all of them by now
alright so thanks a lot for watching and listening and I will talk to you again
soon