Sunday, January 8, 2012

The Triple True Strength Index (TSI) Indicator

This weekend I was musing through my litany of programming experiments that include numerous indicators and all sorts of concoctions and I came across this one - the Triple True Strength Index (TSI) indicator - and as I had forgotten how well it appears to work I thought we could look at it today.

First off, and I have said this many times previously, there is no indicator that is the panacea for getting rich. At least, none of my indicators, anyway. ☺ I do, however, think that indicators can be helpful at putting the odds in one's favor and from that point, risk management is what ultimately separates the winners on Wall Street from the losers.

Anyway, my favored TSI magnification is TSI (7,4). But for a successful trend trading outcome it plays a pretty fast game of tennis. The TSI (25,13) is much better suited for trading trends, but with the caveat that it will give the BUY/SELL signals a bit late. The middle ground, of course, would be the TSI (13,7). And for several years I would have all three of these TSI magnifications separately displayed below price in three separate indicator panels, as I attempted to understand how each worked in relation to each other and with respect to price momentum movement.

More recently, as I have developed my programming skills using the Think or Swim platform, I got the bright idea ☼ of a way to combine all three TSI settings into one indicator. 

And this is how it works: when all three TSI magnifications are rising - simultaneously - the indicator displays a blue ball. When all three are falling - simultaneously - the indicator displays a red ball. And when the three different TSI settings are not moving in the same direction a cyan colored ball is displayed. To add a little contour to the indicator's movement I threw a 7 period moving average on the Triple TSI indicator. And that's it.

So let's see what this looks like. I arbitrarily chose a ticker symbol that I have been watching lately - Direxion's Gold Miner Bull 3X ETF (NUGT) - and made four charts. This first chart is of daily NUGT price movement over the past 10 months.

The indicator seems to work really well for the slower paced swing trader - someone who likes to make a single swing trade every month or so.

Click on any chart to ENLARGE

The next time frame to test the Triple TSI is the 4 hour.

This seems to work well, also. 

The novice TSI user would likely have been confused on the indicator's movement in the latter half of December - mistaking the crossover of the moving average and the indicator's rise as a BUY signal. But it would not have fooled me. HA! That is because I understand that when the TSI is below ZERO, it does not necessarily rise because price is rising. In fact, it rises because the downward momentum is being dissipated as price consolidates sideways. The positive divergence - below ZERO and just after Christmas  - THAT was the signal to pay attention to.

OK - let's look at a 60 minute chart now.

Again, understanding how the TSI works is really important. And I have reviewed the basic "rules" on the chart itself. 

Just for grins, how about we see what the Triple TSI can do with a 1 minute chart. 

For starters, it's obvious that NUGT is not the most liquid ETF on the NYSE. That price action looks like a girl's frizzy hair that has not been brushed for a week. Yowzer!

But seriously, the Triple TSI does a good job for the guy with a fast finger on the trigger. There were somewhat sustained periods where the TSI was above ZERO (red horizontal line). At these times a guy would BUY when the indicator began to rise and SELL when it peaked. And there were other somewhat sustained periods where the TSI was below ZERO. The strategy in this case was to short (or BUY DUST)  as the indicator fell and cover the trade when the indicator began to rebound. 

So there you have it. Another of my many TSI Trader programming concoctions in the never ending pursuit of making sense of the senseless and irrational price movement of stocks. I hope you enjoyed reading this post as much as I enjoyed writing it.

And good luck trading this week!


  1. Very nice work, John. Great set ups!

  2. John, I'm wondering if there is a way to setup freestockcharts to accomplish the same thing?

  3. Nice work. Do ever plan on releasing these indicators or selling them?

  4. Mark - nope. I wish there was a way. At the moment I am attempting to see if I can get Ninja Trader to work for me, as it may also be programmable.

    RCKT - Yes, I would love to do that. I'd also love to retire from teaching school and have some hobby income in place - preferably from tsiTrader. We will see.

  5. Cool, I would definitely pay for this one and some of your other ones.

  6. Whenever you get a buy or sell signal do you wait until the next bar is created or go ahead and buy if the signal was created on the current bar? Buying on the current bar doesn't always seem to work that well because it could bounce off of the trendline or zero line for instance so I think I may just make it a rule for myself to wait for the creation of the next bar and possibly enter a trade if the signal is still valid. How does this sound?

  7. RCKT - you ask a VERY perceptive question. I have watched this stuff with extreme intensity and sometimes I absolutely swear the guyz on the floor have TSI because they will let the price move just enough to sucker a dummy like me into taking the bait, and by the time the bar actually concludes and begins a new bar the direction is completely reversed. Also, I am absolutely certain these guyz have their eyes on the shot clock. The very moment the tick tock hits a new one hour bar, four hour bar, etc., a flood of volume can strike like lightening and shift momentum considerably. This always reminds me of my younger days watching Cassius Clay - he would play that he was stung and hurt and the next thing the other guy knew he was on the canvas seeing stars and hearing the eight count. Faking out the other guy is all part of the game...whatever the game.

  8. Thanks John! Bravo! My best to you!

  9. Thanks John, am i getting this right - currently you are using real time TSI readings to generate buy/sell signal? not waiting for the bar to close, am i correct?

  10. AM - ummm.... well, that is probably not true.

    For example, NUGT 1 hour chart TSI (7,4) made a bullish trend line break 90 minutes ago - but I did not take the bait. Reason: I am waiting to see what happens with the current 4 hour cycle of GC (gold futures). We are now on bar 40 and anywhere around here should be the bottom of this GC 4 hour cycle.

    But until I am fairly sure it has bottomed I don't want to play with 3X fire - even if it looks good "in real time". Indeed, since 90 minutes ago NUGT has rolled over and the TSI BUY signal essentially 'failed' my reluctance to trade the signal 'in real time' was fortunate.

    Anyway, I would like to see GC trade now just below 1605.7 - creating a positive divergence on the 4 hour chart and presumably marking the bottom of this 40 bar cycle.

    Sorry to make all this sound complicated, but my answer is that I pay attention to the contextual clues surrounding the TSI signal and try to improve my odds for success.