just True Strength Indicator

What Is the True Strength Index (TSI)?

The true strength index (TSI) is a technical momentum oscillator used by technical analysts. The true strength index is used to identify trends and reversals in the market. The indicator may determine overbought and oversold conditions, indicate potential trend direction changes via centerline or signal line crossovers, and warn traders of trend weakness that may occur through divergence.

Key Takeaways

• The true strength index is a technical momentum oscillator used by technical analysts to identify market trends and reversals.
• The TSI fluctuates between positive (bullish) and negative (bearish) territory.
• When the indicator divergences with price, the TSI may be signaling the price trend is weakening and may reverse.
• When the TSI crosses above the signal line, it can be used as a buy signal, and when it crosses below, a sell signal.
• Overbought and oversold levels will vary by the asset being traded.

Image by Sabrina Jiang © Investopedia 2021

Formula and How to Calculate the True Strength Index (TSI)

The formula for calculating the TSI involves the following steps.

TSI = (PCDS/APCDS) x 100PC = CCP − PCPPCS = 25-period EMA of PCPCDS = 13-period EMA of PCSAPC = AVCCP − PCPAPCS = 25-period EMA of APCAPCDS = 13-period EMA of APCSwhere:PCDS = PC double smoothedAPCDS = Absolute PC double smoothedPC = Price changeCCP = Current close pricePCP = Prior close pricePCS = PC smoothedEMA = Exponential moving averageAPC = Absolute PCAPCS = Absolute PC smoothed​TSI = (PCDS/APCDS) x 100PC = CCP − PCPPCS = 25-period EMA of PCPCDS = 13-period EMA of PCSAPC = AVCCP − PCPAPCS = 25-period EMA of APCAPCDS = 13-period EMA of APCSwhere:PCDS = PC double smoothedAPCDS = Absolute PC double smoothedPC = Price changeCCP = Current close pricePCP = Prior close pricePCS = PC smoothedEMA = Exponential moving averageAPC = Absolute PCAPCS = Absolute PC smoothed​

The main skill required in computing the TSI is the ability to calculate an exponential moving average (EMA).

• Record price changes and absolute price changes to calculate an EMA for both these values.
• Calculate the price change 25-period EMA and the absolute price change 25-period EMA.
• Smooth both of these EMAs by applying a 13-period EMA to each of them.
• Compute the TSI value by plugging the now double-smoothed price change and double-smoothed absolute price change into the TSI formula.

How the TSI Works

Technical analysis is a trading strategy that is used by certain traders to identify entry and exit opportunities. This is done by researching and evaluating the past performance of an asset, security, or market and making predictions about its direction. Traders use different tools and techniques to pinpoint opportunities. This includes the true strength index, which was created by author and trader William Blau in 1991.1

Technical Analysis of Stocks & Commodities. "V.10:5 (214-219): Trading With The True Strength Index by William Blau."