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Analyzing Mining Stocks With a New Tool

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The True Strength Index is an excellent indicator that may help you making better trading decisions. Here's how it works.

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To be clear, there are three different methods that the TSI can be used to render buy and sell decisions. It's a matter of personal preference and intuition with the current market dynamics that will determine which of the three you chose to use and in what circumstance.

A quick review of the BUY signals:

1. TSI crosses above zero.

2.
TSI crosses above moving average.

3. TSI makes higher low (below zero) while price makes a lower low.

And the SELL signals:

1. TSI crosses below zero.

2. TSI crosses below moving average.

3. TSI makes a lower high (above zero) while price makes a higher high.

4. Trend of TSI breaks down.

I saved the bad news for near the end of this article. And it's this: Nothing, and I mean nothing, works all the time. No indicator on earth works all the time. Even TSI.

Now I feel much better that I've told you the rest of the truth.

Seriously though, this is a great indicator and once you understand how to use it, it should help your buy and sell decisions significantly.

One last chart. This one is a daily of Golden Star Resources (GSS). The TSI gave the zero crossover buy signal on March 1 at a price of about $3. The rally continued for quite some time -- confirmed by higher highs in the TSI with each higher high in Golden Star price until price reached $4.75 on May 15. At that point, Golden Star had made a new high but the TSI didn't. And that correctly gave the sell signal.


Click to enlarge


I hope the True Strength Index indicator has captured your attention and curiosity.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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