True Strength Index
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The true strength index (TSI) is a
technical indicator In technical analysis in finance, a technical indicator is a mathematical calculation based on historic price, volume, or (in the case of futures contracts) open interest information that aims to forecast financial market direction. Technical indi ...
used in the analysis of
financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...
that attempts to show both trend direction and overbought/oversold conditions. It was first published William Blau in 1991. The indicator uses
moving average In statistics, a moving average (rolling average or running average) is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. It is also called a moving mean (MM) or rolling mean and is ...
s of the underlying
momentum In Newtonian mechanics, momentum (more specifically linear momentum or translational momentum) is the product of the mass and velocity of an object. It is a vector quantity, possessing a magnitude and a direction. If is an object's mass an ...
of a financial instrument. Momentum is considered a
leading indicator An economic indicator is a statistic about an economic activity. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles. Economic in ...
of price movements, and a moving average characteristically lags behind price. The TSI combines these characteristics to create an indication of price and direction more in sync with market turns than either momentum or moving average. The TSI is provided as part of the standard collection of indicators offered by various trading platforms.


Calculations

The TSI is a "double smoothed" indicator; meaning that a moving average applied to the data (daily momentum in this case) is smoothed again by a second moving average. The calculation for TSI uses
exponential moving average In statistics, a moving average (rolling average or running average) is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. It is also called a moving mean (MM) or rolling mean and is ...
s. The formula for the TSI is: :TSI(c_0,r,s) = 100 \frac where :''c''0 = today's closing price :''m'' = ''c''0 − ''c''1 = momentum (difference between today's and yesterday's close) :''EMA''(''m'',''n'') = exponential moving average of ''m'' over ''n'' periods, that is, ::EMA(m_0,n)=\frac\left _0-EMA(m_1,n)\rightEMA(m_1,n) :''r'' = EMA smoothing period for momentum, typically 25 :''s'' = EMA smoothing period for smoothed momentum, typically 13


Interpretation

While the TSI output is bound between +100 and −100, most values fall between +25 and −25. Blau suggests interpreting these values as overbought and oversold levels, respectively, at which point a trader may anticipate a market turn. Trend direction is indicated by the slope of the TSI; a rising TSI suggests an up-trend in the market, and a falling TSI suggests a down-trend.


See also

*
Relative Strength Index The relative strength index (RSI) is a technical indicator used in the analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading perio ...


References

{{technical analysis Technical indicators