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True Strength Index

The True Strength Index (TSI) is a momentum-based indicator that was developed by William Blau and is a variation of the Relative Strength Index. It is used to help determine trend and identify overbought and oversold conditions. The indicator has very limited time lag compared to for example a moving average, and so is particularly useful for spotting early changes of trend.


The TSI will rise when the short term trend is up and fall when the shot term trend is down. An increasing TSI indicates increasing momentum in the direction of the price movement.


When the indicator is rising above zero, the price is always rising. When the indicator is falling below zero, the price is always falling.


Technical analysts have their own preferences as to what are considered overbought and oversold levels. Typically values of -25 and +25 are used to indicate levels whether the market is overbought or oversold, but +/-30 and +/-50 are also common.


The TSI chart typically includes a signal line which is a moving average of the TSI itself. When TSI crosses above or below the signal line, this can indicate a change of trend and price reversal and provides an earlier buy / sell signal than waiting for TSI itself to move above / below zero.


TSI crossing below the signal line combined with a TSI of below -25 indicating oversold conditions, can be interpreted as a buy signal; whilst TSI crossing above the signal line combined with TSI above 25 implying conditions are overbought, can be interpreted as a sell signal.


Another means of interpreting the TSI is to look for divergences between price movement and the indicator. For example, where price makes new lows but TSI fails to make new lows, this would indicate momentum is increasing and could signal a buy opportunity. On the other hand, where a market’s price makes new highs but the TSI fails to reach new highs, this could indicate weakening momentum and a possible shorting opportunity.


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Strategies

  • Bullish signal: TSI rising above zero
  • Bearish signal: TSI falling below zero
  • Bullish signal: TSI crossing below -25 and turning up
  • Bearish signal: TSI crossing above 25 and turning down
  • Bullish signal: TSI crosses above its moving average
  • Bearish signal: TSI crosses below its moving average


True Strength Index Formula

The TSI is basically a double Exponential Moving Average of the Momentum indicator. The formula used to calculate the True Strength Index is:


Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://api.formulasearchengine.com/v1/":): {\displaystyle \text{True Strength Index} = \displaystyle \left ( \frac { EMA(EMA(Momentum,r),s) } { EMA(EMA(|Momentum|, r),s) } \right ) * 100 }


where

  • Momentum = The current CLOSE price - previous interval CLOSE price (the Momentum indicator)
  • EMA(Momentum, r) = Exponential Moving Average of Momentum over Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://api.formulasearchengine.com/v1/":): {\displaystyle r} periods where the default Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://api.formulasearchengine.com/v1/":): {\displaystyle r} is 25
  • EMA(EMA(Momentum, r), s) = Exponential Moving Average of EMA(Momentum, r) over Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://api.formulasearchengine.com/v1/":): {\displaystyle s} periods where the default Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://api.formulasearchengine.com/v1/":): {\displaystyle s} is 13
  • |Momentum| = The absolute value of Momentum


True Strength Index Indicator

The True Strength Index indicator can be displayed on the TimeToTrade charts. To add the True Strength Index indicator to the TimeToTrade charts, go to the chart settings and click on the 'Add Indicator' button. Click on the search box and type the name of the indicator that you are looking for, or for example type True Strength Index and scroll through the results:


Generic Indicator Settings 1.png


After adding the True Strength Index indicator, within the chart settings, click on it to set the parameters and change colours.



True Strength Index Alerts

Alerts can be set up to provide an Email or SMS text message notification of when your True Strength Index indicator chart conditions have been met, backtest trading strategies or execute demo trades. To learn more:



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The information and data provided is for educational and informational purposes only. Interpretation and use of the information and data provided is at the user's own risk. All information and data on this website is obtained from sources believed to be accurate and reliable. However, errors or omissions are possible due to human and/or mechanical error. All information and data is provided "as is" without warranty of any kind. We make no representations as to the accuracy, completeness, or timeliness of the information and data on this site and we reserve the right, in its sole discretion and without any obligation, to change, make improvements to, or correct any errors or omissions in any portion of the services at any times. Past performance is not a guarantee of future results. Trading carries a high level of risk to your capital and can result in losses that exceed your deposits. It may not be suitable for everyone so please ensure you fully understand the risks involved.


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