True Strength Index

What Is The True Strength Index?

The True Strength Index (TSI) is a momentum-based technical analysis indicator developed by William Blau. It is designed to filter out short-term price fluctuations and highlight the underlying trend by measuring the strength of a cryptocurrency’s price momentum. The TSI is calculated using a double smoothing method that combines a short-term exponential moving average (EMA) and a long-term EMA.

The True Strength Index consists of two lines: the TSI line and the signal line. The TSI line oscillates around a zero line and is used to identify the direction and strength of a cryptocurrency’s trend. The signal line is a moving average of the TSI line and is used to generate trading signals.”

How Do You Read The TSI?

The True Strength Index provides traders with information about the strength and direction of a security’s trend. When the TSI line is above the zero line, it indicates that the trend is up. A TSI line below the zero line indicates that the trend is down. The further the TSI line is from the zero line, the stronger the trend is believed to be.

Traders also look for crossovers between the TSI line and the signal line to identify potential trading signals. A bullish crossover occurs when the TSI line crosses above the signal line, suggesting a possible upward price movement. A bearish crossover occurs when the TSI line crosses below the signal line, suggesting a possible downward price movement.

How Does The TSI Work?

The True Strength Index works by using a double smoothing method that combines a short-term EMA and a long-term EMA. This calculation filters out short-term price fluctuations and highlights the underlying trend.

How Is The True Strength Index Calculated?

TSI = 100 * EMA(EMA(Close – Prior Close, n), m) / EMA(EMA(ABS(Close – Prior Close), n), m)
Signal Line = n-period Simple Moving Average of TSI

The Encyclopedia Of Technical Market Indicators, Second Edition

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How Do You Use The True Strength Index?

Trend Direction: A bullish signal occurs when the TSI line is above the zero line, indicating an uptrend. A bearish signal occurs when the TSI line is below the zero line, indicating a downtrend.

Bullish/Bearish Crossovers: A bullish crossover occurs when the TSI line crosses above the signal line, signaling a potential upward price movement. A bearish crossover occurs when the TSI line crosses below the signal line, signaling a potential downward price movement.

Additional Trading & Risk Management Tips

Use the True Strength Index in conjunction with other technical indicators and chart patterns to improve the accuracy of your trading signals.

Be cautious when relying solely on the TSI. It can generate false signals in certain market conditions, such as during strong price reversals or volatile, choppy markets.

Practice proper risk management techniques to protect your investments. Always consider other factors in addition to the TSI when making trading decisions.

Consider using the TSI in combination with other momentum or trend-following indicators such as moving averages or the ADX. This can help confirm the strength and direction of the trend, potentially leading to more accurate and reliable trading signals.

Be aware that the TSI may perform differently in different market conditions. It’s essential to stay flexible and adapt your trading strategy as needed.

Keep in mind that the TSI is a lagging indicator. This means it reflects past price movements and may not accurately predict future price movements.

Monitor the TSI for divergences with price movements, which can signal potential trend reversals. Bullish divergences occur when the price makes a lower low, but the TSI makes a higher low. Bearish divergences occur when the price makes a higher high, but the TSI makes a lower high.

Consider using the tool in conjunction with support and resistance levels or trendlines to confirm potential entry and exit points or to identify areas of confluence.

Test the TSI on historical data to evaluate its effectiveness for your specific trading style and market conditions before incorporating it into your live trading strategy. Practice using the True Strength Index using a TradingView account to backtest performance.