Thursday, April 28, 2011

Using the TSI to Nail Both the BUY and the SELL

I wasn't going to do this, but a reader asked me if I would mind making a chart to show how I used the True Strength Index (TSI) to buy and sell my Great Panther Silver (GPL) trade. You may recall that I sold my position from my TSI Trader account yesterday.  What I did not tell you was that in another account I had doubled this position and had not sold any shares - well, not until today, that is.
Click on the chart to ENLARGE
This is a 15 minute chart of Great Panther Silver (GPL).  I bought GPL at $3.26 a couple of days ago using the TSI.  Then this morning I used the indicator to sell the other half of my double position at $3.95. 

Both signals were generated by a trend line break of the indicator.  The buy signal occurred just below the ZERO crossover, which is ideal.  The sell signal occurred just after a negative divergence had been made (higher high in price but lower TSI high).
Pretty kewl, huh?

(Shhhh.....just don't tell anyone how it works, OK? 
Let' just keep this a well-guarded secret and use it to make lots of money!)


  1. picture perfect use of the TSI

  2. Well actually that indicator would of gave you three false buy signals. I have spent 30 years looking for an indicator that works and there isn't one.

  3. As long as the money they keep adding to account is real, the indicator is good enough for me.

  4. John -

    Thanks very much for posting this at my request. This is a good case study for novices at the TSI like me - one picture like this is worth a thousand words!

    Obviously, the TSI did a good job of tracking the course of the “Bernanke run-up.”

    This looks pretty telling to me . . . even if one had delayed some after the indicated sell point, you’d still be ahead of the real pull back.

    Very interesting indeed.

    Thanks again,


  5. John, I have question on TSI when comparing weekly charts with daily ones for (4,7)... My plot on weekly chart shows a rising TSI for the same parameter while Daily one is falling for ERY.... If use parameter (7,7) over weekly it has started moderately rising which makes me feel I should buy ERY and hold it for 2 to 3 weeks at this price... Can you take a peek and let me know your views... as always thanks for ur help !

  6. Hey John,

    Do you see a negative TSI/Price divergence on the SLV daily too?

  7. I do know what you are looking at, but in my book silver has NOT made a negative divergence in the past 5 days. I consider a negative divergence using the intraday high. On Mon 4/25 XSLV intraday high was $49.82.

    For there to be a negative divergence, a subsequent intraday high must exceed the previous price intraday high, while the TSI for that day does not also make make a new high.

    In short, the intraday high reached on this past Monday has not been exceeded as the week progressed. Therefore one would not expect the TSI to have exceeded it's high, on that day, of .87. Indeed, it has not.

    No flashing red warning signs at this point - though obviously price and momentum have paused.

  8. Phil - I thought you would 'see what I saw'.

    The challenge always is to have the confidence in the indicator, understand the significance of what it is telling you, and to act on it with your own money.

    Honestly, I have done thousands of 'practice study' buy and sell setups. I study this many of my waking hours I am not at work.

    My point is that it is one thing to draw the trend lines and see the TSI work in hindsight and it is another thing to act on the signals in real time. The real time action is where one finds out just how well they do and do not understand and trust the finer points of the indicator and its behavior in a particular market.

    It takes practice. I encourage anyone reading this to practice. Practice on anything from a commodity futures contract to a particular stock to an ETF...whatever.

    I never stop practicing. You can do the same if so motivated to accomplish a degree of mastery.

  9. john ive been reading the blog for awhile now, i have no idea how to read these charts or use the TSI but i am amazed at how correct you have been and i check in most everyday to see if you have posted anything new, i have become a true believer, where would a fellow start to learn this stuff at?

  10. Crashjp - where would a fellow start to learn this stuff? Good question. Honestly, I have not found anyone else who fully understands the True Strength Index indicator.

    Wm. Blau, the inventor of the TSI has written a book. For about $50 you can buy a used copy off the Internet. It has some useful information but he certainly did not seem to fully understand how to use his mathematical invention to full advantage, whatsoever.

    Other than Wm. Blau, who I believe only scratched the surface of understanding how to use his invention, I have found noone else.

    Please, if you find someone who has written a book or article about the True Strength Index indicator, let me know!

  11. rags - ERY. There are two certainties using TSI. One is that when the indicator is ABOVE zero and rising, price is always rising. The other is that when the indicator is BELOW zero and falling, price is always falling.

    But this leaves two other situations as uncertainties. First, if the TSI is ABOVE zero and not rising, price is either consolidating sideways or it is falling. And second, if the TSI is BELOW zero and not falling, price is either consolidating or it is rising.

    Both TSI (7,4) daily and weekly for ERY are currently reading BELOW zero.

    The daily TSI reading has been falling for the past 7 trading sessions and we would expect with certainty that price has been falling for the past 7 trading sessions. Indeed, that is true.

    The weekly TSI reading has risen in the past 8 weeks while BELOW zero. We would expect that price has either consolidated sideways or risen. Indeed, 3 of the 8 weeks that the TSI rose, price also rose. And, 5 or the 8 weeks that the TSI fell while BELOW zero, price also fell.

    The weekly is rising because the longer term momentum of falling price is slowing down....but the fact that the TSI is BELOW zero means that the downward momentum is still continuing, but not as fast as previously. Compared with the September to March period of time we see this to be true.

    So what to make of it? Well, the situation is still bearish. Weekly price is still falling though at a slower pace. Recent daily price is falling sharply. I don't see any reason to buy this at this time as a buy and hold and let's see what happens idea. When it is the best time to buy the weekly will make a ZERO crossover and so will the daily.

    It took me some thought a long time ago to get all these concepts through my head....and if you are feeling a tad overwhelmed at the moment, just reread what I have written every day or two until it makes sense. Understanding this is critical to understanding how the TSI works....and with some time you will understand and then be able to use it very very effectively.

  12. Thank you very much John for that detailed explanation ! I will take your advise and try spending some more time.... Thanks again

  13. John: THANKS very much for this article. The TSI and your mastery of it are VERY, VERY convincing. You've convinced me to invest the time into trying to become a "TSI Master" such as yourself.

    This is a mid-term goal of mine. I don't have the time to jump into this heavily right now. So, I guess I'm giving you fair warning: Expect many stupid questions sometime in the future. ;^)

    THANKS again for sharing your considerable expertise and your excitement about the TSI and what it can do!

  14. P.S. John, from an Elliott Wave perspective, I believe you ABSOLUTELY NAILED the very beginning and the very top of a 1 wave going up. You sold before the 2 wave down started. (Then, comes big 3 wave up, 4 wave down and 5 wave up.)

  15. Hi John,
    It's me Tracy again. In view of the latest developments would you still suggest me to hold my physical silver till the second half of May, or it is time to sell it. Sorry for bothering you.
    Thanks again.

  16. jhn - I started this blog last summer while on summer vacation and looking for something interesting to do. FreeStockCharts had been out only months (that I was aware of) with the TSI indicator included. I knew that people would not know much about it, as I had to pay monthly elsewhere to have access to it for 3-4 years before last summer.

    So anyway, I started this blog hoping to dialog with people about how to use the TSI, to help them and maybe even learn something about the indicator from them.

    I've made a lot of good friends, trained a few to mastery level (who really wanted to learn everything about the TSI I knew), and have had a lot of fun.

    Frankly, your success is my success. That is how I always look at things - its just the way a teacher thinks I guess. My reward is knowing that I was a partner in your success.

    So ask all the questions you wish!

    In fact, send me charts with your analysis and I will help you see things that may not occur to you for a long time. When you can send me a chart and demonstrate awareness of all the various dynamics to be considered, I would think you have mastered the TSI.

    Tracy - you are not bothering me. I enjoy being a small part of your investment activity. To tell you the truth, if you really have no interest in owning your physical silver for the next 5 years, but rather are looking at it as a trade, I would think now is a good time to sell it. The amount it can go up from here is limited and the amount it could go down is considerable. The physical silver and gold I own I am keeping for five years.

  17. John: You are EXTREMELY generous. THANK YOU!

  18. Hi John,

    What trading platform do you use? I can't find TSI in my trading plaform.

  19. Hello John,
    The only reason I am contemplating selling now is because I bought it at around $30, and if a correction occurs now and prices come down to $35 level I will buy again and possibly own more silver than I own now. What say.
    Thanks a lot.
    ( Do we expect that kind of retracement shortly )

  20. Anon - I use FreeStockCharts and ThinkorSwim.

    Tracy - the full degree of the retracement is not expected until sometime later this summer. I think silver will return to somewhere in the $30s. I am sure you have thought about this, but just a reminder. There are a whole lot of other ways to make money than trade silver bullion.

  21. Thanks for your guidance John. Appreciate it.

  22. John,
    The S&P 500 TSI looks overbought to me, a TSI reading of .69. The GDX is showing a buy signal. I've only been trading mining stocks for a couple of months, so my question is, do they gererally follow the direction of the market, I'm worried about a correction in the S&P 500, so I'm hesitent to buy any mining stocks right now.
    Thanks again for all the education your providing us.

  23. what in the world just happened to silver? never seen anything like this

    I can totally see the panic sell tomorrow morning and silver could be down 25% in one day

  24. John, hopefully you can nail the buy signals on gold and silver for us to let us know the move is coming! =)

  25. Hey John,

    I was wondering if TSI is used to find support at all

  26. Hi John,
    I too am hoping you will post updated indicators for gold and silver in the near future. I'm a subscriber to Gary's "Smart Money" site, and like to use your work along side his. It makes for a very well-rounded picture. Thank you in advance for any information you can provide regarding PM's, and continued appreciation for sharing your fascinating work.

  27. Harry - thanks for your question. Well, the mining stocks do follow the market and they do not follow the market. Sorry for that silly but true answer.

    The miners are in a secular bull market, the stock market is in a secular bear market. It has been this way since 2001. What that means is that over time the stock market has lost value and the miners have gained value. (Since 2001 the S&P has only traded lower, but the miners have appreciated some 500%). And this will continue to be the case going forward, I should add.

    Being stocks, the miners tend to move in the same direction as stocks. But ultimately their boss is not the stock market, but the price of gold. And this is what accounts for their price appreciation of the past 10 years.

    Miners have been taking a beating for the past couple days and it could well continue a little longer, but then it should be over. I will do a post when the sun comes back out.

    Anon #1 - yeah, silver is volatile as all heck, isn't it? This continues to remind me of 2006. If this time plays out the same, silver will probably not close much lower than $40 and then when gold begins to steadily rise, silver will rise with it.

    Anon #2 - I will try to nail the BUY signs for gold and silver and write about it. The key to it will be the US Dollar's failure to rally strongly as it has begun a new daily cycle today. When the US Dollar takes out the recent low of the past cycle things will get very exciting.

    Hi Spidey - interesting question. I have actually worked on this question quite a bit and have not formally written my findings - probably because they still seem a little inconclusive to me. But to answer your question, I'm not sure that the TSI can be used to determine price support levels.

    What is definitely true is that the TSI can be used to define momentum levels (measurements of price movement over time) where price is likely to fail the continuance of its trend.

    conheart - thank you for your post and I am pleased to learn that you are a subscriber of Gary's daily and weekend reports. Gary is a master of understanding the inter-relationship of cycles, understanding the big picture, as well as many other things. My passion, as you can tell, is with the measurement of price momentum (TSI). I find Gary's work to be brilliant and an indespensible guide for navagating the markets. My work is, appropriately, in the shadow of his and provides a different way to measure and assess his ideas. And I agree that the two approaches do compliment one another.