TDI Indicator REVISITED – with Bloodhound Tutorial

TDI setups and signals

In this post, we revisit the TDI indicator, i.e our Spotlight on the Traders Dynamic Index, showing you how to implement it with Bloodhound from SharkIndicators. Our tutorial starts off with a quick re-cap on what the TDI is, namely a simple study of the RSI indicator in 3 timeframes. We then discuss how to locate a trend bias, crossover- and breakout-signals with Bloodhound. Finally, you’ll learn how to identify exit scenarios when the oversold / overbought thresholds are reached.

If you’re not familiar with the TDI indicator and are curious to learn more, continue reading below and check out our tutorial video:

TDI Indicator: RSI in 3 timeframes

TheTDI indicator combines the RSI in three (3) timeframes, along with the Bollinger Bands.

The RSI is among the most popular oscillators and was first introduced by Welles Wilder in his book, New Concepts in Technical Analysis (1978). He developed the indicator to address two common issues seen with momentum calculations:

  • Erratic output, i.e. values dropping out from the lookback period
  • Lack of a constant benchmark in order to facilitate comparisons

To minimize price distortions, Wilder added smoothing to the momentum calculation. He also created a constant vertical range from 0 to 100. Values above 70 indicate overbought and below 30 oversold scenarios. Initial moves into the overbought/oversold areas are often early warnings and the price move may still continue.

To avoid premature exits, Wilder also combines the oscillator readings with higher time frame swing trend analysis, i.e. comparing higher highs or lower lows with oscillator values, in order to identify divergences. In combination with other tools, you may use the RSI to identify entries, i.e. when crossing above/below the 30 /70 thresholds.

Wilders RSI

Price Line, Signal Line & Base Line

There are different variations of Wilder’s original RSI, such as the Connors RSI, Slow RSI, Stochastic RSI and the Laguerre RSI (all available from our NinjaTrader indicators library). TheTDI indicator also applies the RSI, with a few minor adjustments. First, a lookback period of 13 bars is used, as opposed to the standard RSI lookback period of 14 bars. Secondly, when calculating the price line, a smoothing period of 2 vs. the customary 3 bars is applied to Wilder’s RSI. Also, the TDI uses a SMA for smoothing the price line, signal line and base line, as opposed to the EMA used by Wilder. The signal- and base-lines are obtained by using larger smoothing periods of 7 and 34. As a result the TDI shows the RSI in three different timeframes. The short timeframe, the TDI price line, has almost an identical output to Wilder’s RSI:

TDI Signal Line vs. RSI Average

In addition to the price line (short timeframe), the TDI indicator features a signal line (intermediate timeframe) and the base line (long timeframe). The price line indicates the short-term momentum and used together with the signal line crossovers it identifies potential entries. Finally, you may use the base line to determine the overall direction and trend bias of the market. The different TDI timeframes can be approximated by simply applying a standard RSI as input data for 3 separate SMA periods, using the modified settings (13,2) as follows:

  • Price Line: RSI (13, 2)
  • Signal Line: RSI (13, 7)
  • Base Line: RSI (13, 34)
TDI SMA Smoothing

TDI Indicator: Long Scenario

Another similarity to the RSI indicator, is the use of normalized thresholds to establish overbought and oversold scenarios. As opposed to the 70/30 thresholds used for the standard RSI, the TDI indicator thresholds are set to 68 for overbought and 32 for oversold. One may use the thresholds for exit management, as well as to avoid setups that occur in over extended market conditions.

The TDI indicator also has a volatility measure, namely the Bollinger Bands. Contracting Bollinger Bands indicate a period of consolidation whereas expanding bands will show and increase in volatility. Therefore, when the price line moves outside the Bollinger Bands, it may indicate breakout scenarios as seen in the chart below.

Combined into one indicator, the TDI base line will then indicate a long/short bias when moving above/below the 50 threshold. A straightforward approach is to look for setups that align the base line trend bias. The price line crosses above/below the signal line can then be used as entry points.

TDI Signal Crossover Bollinger Breakout

The LizardIndicators Library TDI indicator also comes with an option for shading the price, signal and base lines once they move above or below the overbought / oversold thresholds. In the examples below we see a green shading as the signal line crosses the overbought/oversold thresholds. When you activate the signal and base line shading, they will plot red and yellow respectively.

TDI overbought oversold thresholds

TDI Indicator: Short Scenario

For the short scenario below, we first see the base line move below the 50 threshold indicating a down trend. Shortly thereafter, the price line crosses below the signal line for a short setup. Later, the signal line also breaks outside the Bollinger Bands. Finally, we see the price line dropping below the 32 level. This example also shows that additional trade management rules (i.e. a trailing stop) should be applied to manage open profits.

TDI setups and signals

Finally, you may best use the Traders Dynamic Index indicator in combination with trend filters, support / resistance and volume indicators. For example, you review the Trend Filters and Trend Analysis categories from our NinjaTrader Indicators Library. Specifically, you may review the ADX, the Adaptive Laguerre or the Heikin Ashi. For support / resistance levels you may review our Session Tools and Fibonacci lines, such as weekly retracement levels. You may also review our tools for Range and Volume Analyis, i.e. relative ranges / relative volume analysis.

For more information on the TDI indicator for NinjaTrader 8, simply follow the link below:

A video explaining the TDI indicator is available here: