A couple days ago a reader emailed me to say that he had a large gain in silver and was disappointed to see his gain greatly diminished by the recent sell-off he did not see coming. I wrote back that he should use the True Strength Index (TSI) indicator and that he would have known when to sell (if he had wanted to sell that is).
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After a bit of grumbling he reported back to me that the TSI did not tell him a sell-off was coming.
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OK. This is when I realized that it has been too long since the last time I reminded readers of some of the TSI tricks available to them, hence this post today.
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I have identified no less than 5 different techniques for using the True Strength Index indicator to generate accurate and timely buy/sell signals - and written about each in previous posts. Today I will refocus on the technique I use most frequently called the trend line break.
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The software I use is freely available on the Internet at www.FreeStockCharts.com I always set my TSI indicator to (7,4).
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I will use the last couple of sharp corrections in silver to demonstrate this technique. And as I am continually experimenting with using the TSI in different time frame magnifications, these charts of Proshares Ultra Silver 2X ETF (AGQ) will use the daily, 4 hour and 2 hour time frames.
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To keep this a little less confusing for the reader, I have used a split screen approach. The price and indicator action on both left and right sides of the screen is identical. The difference between the two is that I have drawn the trend line break SELL signals on the left side, and the trend line break BUY signals on the right side.
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If a picture is worth 1,000 words, well, this post should read at least 6,000 words as there are actually 6 pictures demonstrating the trend line break technique. With that introduction, I will leave you will the following 6 charts to speak of the technique. You should find it quite intuitive.
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Click on any chart to ENLARGE
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Feel free to write me or post comments/questions, OK?
This is AGQ on a daily time frame.
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great post and appreciate your insight...at the risk of asking a plain ole stupid question, how do you determine where to draw the trend line and i assume you need to update daily...i generally stick with daily timeframes to make buy and sell decisions...any additional insight would be appreciated...thanks
ReplyDeletestuart
John, thus based on these charts, it would seem to me that a AGQ is presently on or close to a buy signal? Looking forward to your response. TIA
ReplyDeleteTSI seems to be simple but yet powerful indicator. It's signals are usually the same as MACD + stochastic give, but TSI is a single indicator and thus easier to read.
ReplyDeleteOn the other hand, having multiple indicators can help gauge the strength of the signal. In your AGQ daily buy signal example, MACD at the first signal is negative, that is not good for strong buy.
Anyway, I'm following your posts with great interest and appreciate work you doing!
John,
ReplyDeleteI've been through the school of hard ($) knocks and now I believe I am ready to turn the corner thanks to you.
Bob
On the 2 hour chart comparing #1 sell line to #3 sell line there is a point at approx. Dec.3rd that looks very similar to where #1 line was drawn through but you drew #3 further along,why?Not trying to be critical,just find it tricky to know where to draw these lines!Thanks
ReplyDeleteHi John,
ReplyDeleteI checked the one-hour chart for AGQ on freestockcharts, and it appears that we got a buy signal on Friday on the TSI.
I assume that is why you went long on Friday?
Stuart - I don't update my trend lines daily - I put them on the charts and they sit there until broken, then I consider taking buy/sell action.
ReplyDeleteKathleen - I believe AGQ is on a buy signal and watching silver and the dollar overnight, I am sure it is on a buy signal. +5.42 in the pre-market so far.
Bob - you are very kind. I do credit the TSI and my particular style of trading to my success....not that there aren't a zillion other programs that work.
Anon - i c ur point. First, drawing lines in hindsight is a lot easier than in real time - a reason I practice the skill all the time. Second, if the TSI is rising above ZERO, price is ALWAYS rising. So, if you had chosen to draw that line as you suggest, you would not have been hurt selling as long as you recognized to rebuy AGQ once the TSI began rising soon thereafter.
JW - u understand exactly!
Thank you so much for this blog! Just found it today. I'm just learning and have done well in AGQ so far, but never know when to sell/buy. Really opened my eyes on how to technically do this.
ReplyDelete