True Strength Index (TSI)

The True Strength Index (TSI) is a momentum indicator that measures the speed and magnitude of price changes. It is based on the concept that the faster a stock is rising or falling, the more likely it is to continue in that direction. The TSI is calculated by taking the 14-day Exponential Moving Average (EMA) of the 14-day EMA of the closing price and dividing it by the 14-day EMA of the absolute value of the difference between the closing price and the 10-day EMA.

The TSI is a versatile indicator that can be used to identify overbought and oversold conditions, as well as to generate trading signals. It is often used in conjunction with other indicators, such as the Moving Average Convergence Divergence (MACD) and the Relative Strength Index (RSI).

The TSI is typically interpreted in the same way as the RSI, with readings above 70 considered overbought and readings below 30 considered oversold. However, the TSI is more sensitive to changes in price than the RSI, so it can generate more trading signals.

One of the most common ways to use the TSI is to look for divergences between the TSI and the price. A divergence occurs when the TSI and the price move in opposite directions. A bullish divergence occurs when the price makes a lower low but the TSI makes a higher high. This indicates that the underlying momentum is bullish, even though the price is making lower lows. A bearish divergence occurs when the price makes a higher high but the TSI makes a lower low. This indicates that the underlying momentum is bearish, even though the price is making higher highs.

Another way to use the TSI is to generate trading signals. One common signal is to buy when the TSI crosses above the 70 level and sell when the TSI crosses below the 30 level. However, it is important to remember that the TSI is a lagging indicator, so it is not always the best indicator to use for timing trades.

The TSI is a useful indicator that can be used to identify overbought and oversold conditions, as well as to generate trading signals. However, it is important to remember that the TSI is a lagging indicator, so it is not always the best indicator to use for timing trades.