- June 17, 2025
- Posted by: Shane Daly
- Categories: Trading Article, Trading Indicators
The True Strength Index (TSI) is a technical momentum indicator that measures market strength by analyzing price changes and volume. It oscillates between +100 and -100, with key signals occurring at the +20 and -20 levels. Traders use TSI to identify potential trend reversals and overbought or oversold conditions in financial markets. The indicator combines two smoothing processes using exponential moving averages, making it effective for both day trading and longer-term analysis. Understanding its signal line crossovers unlocks powerful trading opportunities.
TLDR
- TSI measures market momentum by calculating double-smoothed price changes relative to double-smoothed absolute price changes, oscillating between +100 and -100.
- Buy signals occur above +20 and sell signals below -20, with strongest signals near extreme levels of +/-25.
- Daily charts provide most reliable TSI signals, while shorter timeframes below 15 minutes may generate false signals.
- TSI combines effectively with moving averages, RSI, and MACD for improved signal confirmation and trading accuracy.
- Stop-loss levels and support/resistance zones are important when trading with TSI to manage risk and identify potential reversals.
True Strength Index: How to Calculate TSI
While the True Strength Index (TSI) calculation may appear complex at first glance, it follows a systematic three-step process that builds upon basic price momentum.
The first step is to calculate the price change between current and previous closing prices, creating a momentum value. This momentum undergoes two smoothing processes using exponential moving averages – a 25-period EMA followed by a 13-period EMA.
Next, the same double-smoothing process is applied to the absolute values of the momentum readings.
Finally, to determine the true strength index value, divide the double-smoothed momentum by the double-smoothed absolute momentum and multiply by 100. The resulting TSI oscillates between +100 and -100, with zero serving as the centerline.
This calculation method helps traders identify the strength of price movements while filtering out market noise, making it easier to spot potential trend reversals and market conditions.
TSI Signal Line Crossovers: Best Levels for Trading
Understanding the most effective TSI signal line crossover levels can significantly improve trading decisions by providing clear entry and exit points. The most reliable trading signals occur at specific levels, with buy signals emerging when the TSI crosses above +20 and sell signals when it drops below -20.
The TSI indicator identifies several key zones that traders should monitor. The strong bullish momentum zone lies between 25-30, while moderate bullish activity occurs between 15-20. The neutral centerline at 0 is used as a reversal point.
On the bearish side, moderate selling pressure develops between -15 to -20, with strong bearish momentum appearing between -25 to -30. For ideal results, traders should pay special attention to double crossovers near extreme levels of +/-25, as these often signal significant trend reversals.
The most effective TSI settings for monitoring these crossovers include a first smoothing period of 25, second smoothing period of 13, and signal line period of 9.
Breakouts, Oversold/Overbought, Divergence
In addition to crossovers, traders can also use breakouts, overbought and oversold levels, and divergence to analyze the TSI and generate trading signals.
Breakouts
A breakout occurs when the price moves beyond a predefined level or range. Breakouts can be a sign of a strong trend and potential buying or selling opportunities:
Bullish breakout: When the price moves above a resistance level with a TSI rise, it could signal that the asset’s price is gaining momentum, and it might be a good time to buy.
Bearish breakout: When the price moves below a support level and TSI heads down, it could suggest that the asset’s price is losing momentum, and it might be a good time to sell.
Oversold and Overbought Conditions
With this trading approach, traders look for extreme readings on the TSI, which can indicate that an instrument is oversold or overbought.
Oversold levels: Any reading below -70 (some will use -50) suggests sellers may weaken and we get a buying opportunity
Overbought levels: A reading above +70 (some will use +50) is a sign that the instrument has extended too far and may present an opportunity to the downside
At these levels, traders will look for some confirmation of a reversal such as a chart pattern or other technical indicators.
Divergence
Divergence happens when the TSI moves in the opposite direction of the price highlighting a potential change in market bias.
Divergence can be an early warning sign of a potential trend reversal:
Bullish divergence: If the price is making lower lows, but the TSI is making higher lows, it could indicate a potential trend reversal to the upside.
Bearish divergence: If you are seeing price making higher highs, but the TSI is making lower highs, it could signal a potential trend reversal to the downside.
By adding the signal line and centerline crossovers, breakouts, and divergence into your TSI analysis, you can develop a more robust trading strategy that takes advantage of the different market conditions you will face.
Best Timeframes for TSI Trading Strategy
Selecting the right timeframe is important for maximizing the effectiveness of TSI trading strategies. The indicator performs best on daily charts, which provide the most reliable signals for identifying major market trends and potential turning points.
When combined with 4-hour charts, traders can develop a solid system for position trading with improved accuracy.
For different trading styles, specific timeframe combinations yield ideal results. Position traders benefit from analyzing daily and 4-hour charts together, while swing traders can focus on 4-hour and 1-hour combinations.
Day traders often find success using 1-hour charts supported by 15-minute timeframes. It’s important to note that timeframes below 15 minutes typically generate more noise and false signals, making them less reliable for TSI analysis.
Traders should stick to their chosen timeframe combinations consistently and avoid frequently switching between different time periods to maintain strategic coherence.
Remember that establishing clear risk parameters through proper timeframe selection is essential for responsible trading outcomes.
Combining TSI with Other Indicators for Better Analysis
To improve trading accuracy and minimize false signals, traders can combine the True Strength Index (TSI) with other technical indicators for stronger confirmation. The most effective combinations include moving averages, RSI, and MACD, which help validate momentum shifts and trend directions. These complementary tools work together to create a more comprehensive trading approach.
| Indicator | TSI Confirmation Method | Signal Strength |
|---|---|---|
| Moving Averages | TSI crossovers with MA support | Strong when aligned |
| RSI | Overbought/oversold agreement | High probability |
| MACD | Momentum and divergence validation | Very reliable |
| Volume | Price movement verification | Improved accuracy |
When combining indicators, traders should focus on finding agreement between multiple signals before taking action. For example, a TSI buy signal becomes more reliable when supported by an RSI oversold condition and MACD histogram confirmation. This multi-indicator approach helps filter out noise and identify higher-probability trading opportunities.
Monitoring market divergence patterns between price actions and indicators provides valuable insights for potential trend reversals.
Positive and Negative Momentum
The TSI oscillates around a zero line, which represents the centerline between positive and negative momentum. When the TSI is above the zero line, it indicates positive momentum, and we can assume that we are looking at an uptrend.
When the TSI is below the zero line, it indicates negative momentum, suggesting that the price is in a downtrend.
Trend Strength
The TSI can also provide insights into the strength of a trend. A larger value of the TSI indicates a stronger trend, while a smaller value suggests a weaker trend. For example, a TSI value of +30 signifies a stronger uptrend than a TSI value of +10.
The TSI can provide important insights into trends by indicating the strength and direction of the price movement. Here’s what the TSI can tell traders about market trends:
| TSI Value | Meaning | Strategy |
|---|---|---|
| Positive | Price movement is gaining strength | Consider buying the instrument or exiting short trades |
| Negative | Price movement is losing strength | Consider selling the asset or exit long trades |
| Zero | No clear trend or significant strength | Look for additional confirmation from other indicators or price action |
By understanding how the TSI can show the trend direction, traders can use this information to help decide whether to buy or sell an instrument or stand aside.
TSI vs Other Indicators
Another popular momentum indicator in technical analysis is the Moving Average Convergence Divergence (MACD) Let’s compare both the TSI and MACD to see if one of them is best.
TSI VS Moving Average Convergence Divergence (MACD) indicator
The Moving Average Convergence Divergence (MACD) is a widely-used momentum indicator that calculates the difference between two exponential moving averages (EMAs) of an asset’s price.
The MACD helps traders identify the price trend, trend reversals, bullish or bearish market conditions, and potential entry or exit points.
Both momentum indicators are valuable tools for analyzing market trends and momentum but there are some key differences between them:
Calculation: While the TSI uses a double smoothing of price changes to measure momentum and offer trade signals, the MACD relies on the difference between short-term and long-term EMAs.
Sensitivity: The TSI is considered to be less sensitive to price movements compared to the MACD due to the double smoothing price formula. This means that the TSI might generate fewer false signals, but it may also react more slowly to sudden price movements.
Interpretation: TSI primarily emphasizes the intensity and trend of price movements, and the MACD helps recognize possible shifts in market conditions and trend reversals. While both indicators can assist in producing trading signals, their methods of doing so are different from one another.
It’s essential to understand that there are no best technical indicators and that no single indicator is perfect or suitable for all trading strategies. Traders often use a combination of indicators, including both the TSI and the MACD, to confirm signals and add confirmation to their trading decisions.
Using TSI With Average True Range (ATR)
The Trend Strength Index (TSI) measures price movement strength and direction, while the Average True Range (ATR) measures volatility over a given period. Combining these indicators can identify opportunities in trending and volatile markets.
For instance, a high TSI and ATR might signal a strong, volatile bullish trend, where using a trailing stop loss could protect profits while riding the trend.
Limitations of the TSI
While the True Strength Index is a useful tool for identifying market trends and momentum, it’s essential to be aware of its limitations:
Lagging indicator: Like most technical indicators, the TSI is a lagging indicator, meaning that it is based on historical data and may not always accurately predict future price movements or even current conditions.
False signals: It is less sensitive to price fluctuations compared to some other indicators, but it can still give you low quality signals to trade, especially in highly volatile markets.
No guarantee of success: While the TSI can provide valuable insights into market trends, it does not guarantee success in trading. While this may seem obvious, too many traders focus on technical indicators as the “Holy Grail” of trading.
Understanding the TSI’s limitations and comparing it with other indicators like the MACD can help traders develop a well-rounded trading strategy.
It is important essential to use a combination of technical indicators, price action, market analysis, and risk management techniques to increase your chances of success in trading.
True Strength Index for Day Trading
In this section, we’ll discuss how to use the True Strength Index (TSI) for day trading. This will include the best TSI settings for an intra-day strategy
What are the best settings for a day trading strategy?
When using the TSI for day trading (5 minute chart example), you may want to adjust the settings to be more responsive to short-term price movements. Here are some suggestions for the best settings for a day trading short term strategy:
- TSI Period: Consider reducing the TSI period to capture short-term price fluctuations. A 5-10 day period might be better for day trading than the default 25-day period.
- Signal Line: Use a shorter EMA for the signal line, such as a 3-day or 5-day EMA, to generate faster signals.
Remember, the best settings for your trading strategy will vary depending on your trading style and the specific market you’re trading in.
Experiment with different settings and backtest your strategy to find the best settings for your strategy.
Common TSI Trading Mistakes To Watch Out For
Understanding TSI’s reliability leads naturally to recognizing common mistakes traders make with this indicator. Many traders fall into the trap of using TSI signals in isolation, without considering other technical indicators or the broader market context. This often leads to poor trading decisions and unnecessary losses.
A critical mistake is responding to every minor TSI fluctuation, leading to overtrading and increased transaction costs. Traders should wait for clear signals to develop and avoid trading based on small movements.
Another common issue is ignoring the primary market trend while focusing solely on TSI readings. Successful trading requires confirming TSI signals with price action and volume analysis.
Additionally, traders often fail to adjust their TSI settings for different timeframes and market conditions. Using inappropriate lookback periods and not accounting for market volatility can result in false signals, especially during choppy market conditions.
Proper stop-loss levels and consideration of support and resistance zones are essential for effective TSI trading.
Your Questions Answered
What Is the True Strength Indicator TSI?
The True Strength Index is a momentum oscillator that measures price movement strength through double exponential moving averages, ranging from +100 to -100, identifying overbought and oversold conditions in financial markets.
What Are the Best Settings for the True Strength Indicator?
Standard settings use 25-period long and 13-period short parameters. Traders may adjust to shorter periods like 7/9 for quicker signals or longer periods for steadier trends, based on market conditions.
How Do You Calculate the True Strength Indicator?
Calculate by finding price change (NetChange), apply 25-period EMA twice for smoothing, then divide double-smoothed NetChange by double-smoothed absolute price change, multiply by 100 for final value.
What Is the Difference Between RSI and True Strength Indicator?
RSI measures price change speed, while TSI uses double smoothing of price momentum. TSI incorporates volatility and ranges from -100 to +100, making it more effective at confirming trends and spotting divergences.
Conclusion
The True Strength Index is a great tool for traders looking for reliable momentum signals. Its double-smoothing approach effectively filters market noise while providing clear indicators for trend strength and potential reversals. When used with proper signal line crossovers and complementary indicators like we talked about, TSI can significantly improve trading decisions. However, traders must remain mindful of timeframe selection and avoid common pitfalls for ideal results.
