True Strength Index - TSI

We thought we were a weakling. But then the carnival rolled into town, and we swung that big hammer, and the thingie went all the way to the top, ringing the bell. Now we know our true strength.

There's something sorta kinda like that in the stock market, where traders continually examine various indexes to try and predict the direction the stock market will go. The True Strength Index (TSI) looks at the all-important trend direction as to whether the market is headed up or down, but also whether a particular stock is overbought or oversold. It examines not only the trend, but the strength of that trend. An actual number is calculated by applying a “moving average” as the stock’s price changes over a 25-day period, but it can be used for any length of time. The TSI ranges between +100 and -100, so when it’s above zero, one can assume the market is looking bullish, and below zero indicates it is turning bearish.

Let’s say the True Strength Index number is between -25 and +25, and Joe Trader wants to tell if it is overbought or oversold. If the index is below -25 and there's an upward trend in the market, Joe might take a long position on the stock, meaning he expects the price to go up, so he has no plans to sell it in the near future. On the other hand, when it moves to above +25, Joe might decide to close the position, in other words sell it, as he expects the price to go down.

Traders also use the True Strength Index to pick out a stock that is ready to “break out,” (meaning to go up a lot) or “break down” (take a guess here), to go down by a lot.