True Strength Index TSI Definition Forexpedia by BabyPips com

The https://forexhero.info/tokenexus-opinion-according-to-the-general-defi-sector/ (TSI) is a momentum-based indicator developed by William Blau. The TSI is suitable for intraday time frames as well as long term trading and helps to define trend and oversold/overbought conditions. A TSI indicator strategy should align with a mid/higher time frame trend bias and Volume / Range Analysis. You may for example review the trend bias using the Donchian Channel, Heikin Ashi Candles, the Regression Channel or the Daily Regression Channel. The Donchian Channel, TDI indicator and the Regression Channel were discussed our Indicator Spotlight.

Conversely, when the oscillator’s line goes down, a downtrend prevails. The farther away from the zero line the TSI line is, the
stronger the price momentum is. Extreme values warm of oversold and overbought conditions of an instrument and possible trend reversals. The line’s moving close to the zero line for a noticeable period of
time suggests a sideways market presence.

True Strength Index: Best Settings for a Day Trading Strategy

Furthermore, trend lines, support lines, and resistance lines can even be drawn on the TSI. The Exponential Moving Average is a technical chart pointer that tracks the price of an investment over time and gives utmost importance to recent price data. You can also use the True Strength Index divergence to identify if the trend is going to change anytime soon. The actual entry comes from the cross of the signal line, which I marked with the yellow arrow.

The range-bound oscillator makes it easy to identify overbought and oversold levels for any asset. The indicator was highly accurate for predicting price changes over the last few years and can be combined with the Relative Strength Index (RSI) for additional range-bound information. Just keep in mind that if you need to change the true strength indicator settings for each trading instrument based on the stock’s volatility. Otherwise, you will end up getting a lot of false signals, which will do more harm than good. Nonetheless, True Strength Index could prove to be one of the best technical indicators that can help you improve your trading by keeping you in winning trades. Finally, stricture in the True Strength Index setting is the same signal line, which is merely a vastly moving average of TSI.

Tips for how to trade Leveraged ETFs with the Directional Movement Index

If the increase in price is not matched by these metrics, the price rally cannot be sustained and the price is bound to diverge. A trader could open a short trade using the example above and profit on a pullback from the high $60,000s to the low $40,000s. When you see a True Strength Index divergence like the one in the PRGO chart (figure 3) above, do not simply close your positions. Remember that during strong trends, the True Strength Index tends to generate a lot of false divergence that do not play out very well. Well, do not use the trend line breaks as an entry signal because it is not meant to be used this way!

Compared to standard TSI indicators, our version comes with a number of enhancements. One may select the momentum period and use it to calculate the momentum, prior to smoothing it. You can furthermore apply double smoothing with this version of the TSI indicator. The “smoothing period “3” is then set to “1” and for triple smoothing of momentum and absolute momentum. Finally, the True Strength Index has a signal line and a histogram added.

Center Line Crossover

TSI often produces support and resistance levels that chartists can use to identify breakouts or breakdowns. The example below shows Citigroup (C) with TSI establishing support in March. The indicator broke support in early April and this breakdown foreshadowed a significant decline into May. TSI then rebounded in June and formed a flat consolidation into July. This consolidation resembled a falling flag and TSI broke above the trend line in late July. Since it is based on the movement of price, oversold and overbought levels differ by the specific asset that is being traded.

Both indicators use the symbol “TSI” which can be confusing because they output different values. The True Strength Index is a bit more advanced because it’s based on multiple EMAs. Divergence is not a common occurrence because the indicator trails behind the price more than 95% of the time, hence it requires special attention to detail. In this case, the price went up to $69,000 while the TSI indicator declined.

Bullish TSI Signal Line Cross

The True Strength Index should not be confused with the “Trend Strength Index”, a different indicator bearing the same symbol–TSI. Both indicators are based on the EMA, but the Trend Strength Index only uses one EMA as a basis for the oscillator while the True Strength Index uses three EMAs. As you can see on the example chart, as soon as the True Strength Index crossed above the zero line, the price began moving in an impulsive fashion. While this chart is based on 15 minutes, the indicator is fractal.