34. True Strength Index (TSI)
1. What is True Strength Index (TSI)?
The True Strength Index (TSI) is a momentum-based oscillator developed by William Blau that smooths price changes using double exponential moving averages. It’s designed to identify trend direction, reversals, and momentum strength while filtering out short-term noise.
2. Components of TSI?
Momentum = Current Price − Previous Price
EMA of Momentum (short-term smoothing, e.g., 25-period)
EMA of EMA of Momentum (long-term smoothing, e.g., 13-period)
TSI Formula:
TSI=100×Double EMA of MomentumDouble EMA of Absolute MomentumTSI = 100 \times \frac{\text{Double EMA of Momentum}}{\text{Double EMA of Absolute Momentum}}
Optional: A signal line is usually a 7-period EMA of the TSI.
3. Pros and Cons of True Strength Index?
Pros:
Filters out short-term volatility and market noise.
Combines trend and momentum in one oscillator.
Useful for identifying bullish/bearish divergences and crossovers.
Cons:
May lag in fast-moving markets due to smoothing.
Less known and supported than RSI or MACD.
Can generate false crossovers in flat markets.
4. What is the purpose of TSI in stock analysis?
To measure momentum strength and direction.
To detect trend changes through crossovers and divergence.
To filter trades based on smooth, volume-neutral momentum shifts.
5. How is TSI calculated or derived?
Calculate price momentum = Close − Previous Close.
Apply a short EMA and then a long EMA to the momentum and its absolute value.
Plug into the formula:
TSI=100×EMA(EMA(Momentum))EMA(EMA(∣Momentum∣))TSI = 100 × \frac{EMA(EMA(Momentum))}{EMA(EMA(|Momentum|))}
6. When should traders use TSI?
When looking for momentum reversals with reduced noise.
In trend-following strategies for confirmation.
To spot bullish/bearish divergence for early warning signals.
7. What are the limitations or risks of using TSI?
Can lag in high-volatility or fast-reversal markets.
May require custom tuning per asset.
Not as effective in range-bound conditions.
8. What are common mistakes when interpreting TSI?
Misusing TSI crossovers as standalone buy/sell signals.
Ignoring trend or support/resistance context.
Not confirming with volume or price structure.
9. How can TSI be combined with other tools for better accuracy?
Pair with MACD or RSI to strengthen momentum confirmation.
Use with trend indicators like moving averages or ADX.
Combine with price action patterns or support/resistance zones.
10. How do professional traders interpret TSI differently from beginners?
Professionals:
Focus on divergence and trend-confirmed crossovers.
Adjust smoothing periods based on volatility and timeframe.
Use TSI slope and histogram-type behavior for momentum insights.
Beginners:
Trade every crossover blindly, without filtering.
Don’t adjust TSI settings for asset or strategy.
Miss subtle signals like fading momentum or divergence.
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