34. True Strength Index (TSI)

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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.

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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.

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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.

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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.

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5. How is TSI calculated or derived?

1. Calculate price momentum = Close − Previous Close.

2. Apply a short EMA and then a long EMA to the momentum and its absolute value.

3. Plug into the formula:

   TSI=100×EMA(EMA(Momentum))EMA(EMA(∣Momentum∣))TSI = 100 × \frac{EMA(EMA(Momentum))}{EMA(EMA(|Momentum|))}

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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.

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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.

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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.

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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.

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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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