True Strength Index

The True Strength Index (or TSI) is a momentum indicator developed by William Blau. It was designed to determine trends and overbought and oversold states. It is considered to have both the properties of the RSI and the MACD.

This indicator varies between +100 and -100.

Calculation Method

TSI = 100 * EMA(EMA(momentum, P1), P2) / EMA(EMA(abs(momentum), P1), P2)

where:

• EMA(momentum, P1): The Exponential Moving Average of momentum over period P1
• momentum: Today's Close - Yesterday's Close
• EMA(EMA(deviation, P1), P2): The Exponential Moving Average of the previous EMA over period P2

Generally: P1 = 25 periods and P2 = 13 periods.

A signal line (Trigger) is also added, corresponding to the Exponential Moving Average of the TSI with period P3 (generally P3 = 7).

Example

Interpretation

The Stochastic TSI can be interpreted in several ways:

1. Overbought or oversold signal: when the TSI is above 70, the instrument is considered overbought and a downward correction could occur in the near future.
   Conversely, when the TSI is below 30, the instrument is considered oversold and an upward correction could occur in the near future.
2. Buy or sell signal: when the signal line crosses the TSI curve.