LogoLogo
Return to StockChartsCharts & ToolsArticlesChartSchoolYour Dashboard
  • 📋ChartSchool
  • Table of Contents
    • Overview
      • Why Analyze Securities?
      • Technical Analysis
      • Fundamental Analysis
      • Random Walk vs. Non-Random Walk
      • Asset Allocation and Diversification
      • John Murphy's 10 Laws of Technical Trading
      • John Murphy's "Charting Made Easy" eBook
      • Technical Analysis 101
        • TA 101 – Part 1
        • TA 101 – Part 2
        • TA 101 – Part 3
        • TA 101 – Part 4
        • TA 101 – Part 5
        • TA 101 – Part 6
        • TA 101 – Part 7
        • TA 101 – Part 8
        • TA 101 – Part 9
        • TA 101 – Part 10
        • TA 101 – Part 11
        • TA 101 – Part 12
        • TA 101 – Part 13
        • TA 101 – Part 14
        • TA 101 – Part 15
        • TA 101 – Part 16
        • TA 101 – Part 17
      • Irrational Exuberance
      • Cognitive Biases
      • Arthur Hill on Goals, Style and Strategy
      • Arthur Hill on Moving Average Crossovers
      • Multicollinearity
      • "The Trader's Journal" by Gatis Roze
        • Stage 1: Money Management
        • Stage 2: Business of Investing
        • Stage 3: The Investor Self
        • Stage 4: Market Analysis
        • Stage 5: Routines
        • Stage 6: Stalking Your Trade
        • Stage 7: Buying
        • Stage 8: Monitoring Your Investments
        • Stage 9: Selling
        • Stage 10: Re-Examine, Refine, Re-Enhance
        • Additional Reading
      • Bob Farrell's 10 Rules
      • Richard Rhodes' Trading Rules
      • Donchian Trading Guidelines
      • Why and How To Use Correlation
    • Chart Analysis
      • What Are Charts?
      • Support & Resistance
      • Trend Lines
      • Gaps and Gap Analysis
      • Introduction to Chart Patterns
      • Chart Patterns
        • Broadening Top or Megaphone Top
        • Double Top Reversal
        • Double Bottom Reversal
        • Head and Shoulders Top
        • Head and Shoulders Bottom
        • Falling Wedge
        • Rising Wedge
        • Rounding Bottom
        • Triple Top Reversal
        • Triple Bottom Reversal
        • Bump and Run Reversal
        • Flag, Pennant
        • Symmetrical Triangle
        • Ascending Triangle
        • Descending Triangle
        • Rectangle
        • Price Channel
        • Measured Move—Bullish
        • Measured Move—Bearish
        • Cup With Handle
      • Chart Types
        • Arms CandleVolume
        • CandleVolume
        • Elder Impulse System
        • EquiVolume
        • Heikin-Ashi Candlesticks
        • Kagi Charts
        • Renko Charts
        • Three Line Break Charts
        • MarketCarpets
        • Relative Rotation Graphs (RRG Charts)
        • Seasonality Charts
        • Yield Curve
      • Candlestick Charts
        • Introduction to Candlesticks
        • Candlesticks and Traditional Chart Analysis
        • Candlesticks and Support
        • Candlesticks and Resistance
        • Candlestick Bullish Reversal Patterns
        • Candlestick Bearish Reversal Patterns
        • Candlestick Pattern Dictionary
      • Point and Figure Charts
        • Point and Figure Basics
          • Introduction to Point & Figure Charts
          • Point & Figure Scaling and Timeframes
          • P&F Trend Lines
        • Classic Patterns
          • P&F Bullish Breakouts
          • P&F Bearish Breakdowns
          • P&F Signal Reversed
          • P&F Catapults
          • P&F Triangles
          • P&F Bull & Bear Traps
        • P&F Price Objectives
          • P&F Price Objectives: Breakout and Reversal Method
          • P&F Price Objectives: Horizontal Counts
          • P&F Price Objectives: Vertical Counts
        • Point & Figure Indicators
        • P&F Scans and Alerts
          • P&F Pattern Alerts
      • Chart Annotation Tools
        • Andrews' Pitchfork
        • Stock Market Cycles
        • Fibonacci Retracements
        • Fibonacci Arcs
        • Fibonacci Fans
        • Fibonacci Time Zones
        • Quadrant Lines
        • Raff Regression Channel
        • Speed Resistance Lines
    • Technical Indicators & Overlays
      • Introduction to Technical Indicators and Oscillators
      • Technical Indicators
        • Accumulation/Distribution Line
        • Alligator Indicator
        • Aroon
        • Aroon Oscillator
        • ATR Bands
        • ATR Trailing Stops
        • Average Directional Index (ADX)
        • Average True Range (ATR) and Average True Range Percent (ATRP)
        • Balance of Power (BOP)
        • Bollinger BandWidth
        • %B Indicator
        • Chaikin Money Flow (CMF)
        • Chaikin Oscillator
        • Chande Trend Meter (CTM)
        • CMB Composite Index
        • Commodity Channel Index (CCI)
        • ConnorsRSI
        • Coppock Curve
        • Correlation Coefficient
        • DecisionPoint Price Momentum Oscillator (PMO)
        • Detrended Price Oscillator (DPO)
        • Distance From Highs
        • Distance From Lows
        • Distance To Highs
        • Distance To Lows
        • Distance From Moving Average
        • Ease of Movement (EMV)
        • Force Index
        • Gopalakrishnan Range Index
        • High Low Bands
        • High Minus Low
        • Highest High Value
        • Linear Regression R2
        • Lowest Low Value
        • Mass Index
        • MACD (Moving Average Convergence/Divergence) Oscillator
        • MACD-Histogram
        • MACD-V
        • MACD-V Histogram
        • Median Price
        • Money Flow Index (MFI)
        • Negative Volume Index (NVI)
        • On Balance Volume (OBV)
        • Percentage Price Oscillator (PPO)
        • Percentage Volume Oscillator (PVO)
        • Performance Spread
        • Price Relative/Relative Strength
        • Pring's Know Sure Thing (KST)
        • Pring's Special K
        • Rate of Change (ROC)
        • Relative Strength Index (RSI)
        • Relative Volume (RVOL)
        • RRG Relative Strength
        • StockCharts Technical Rank
        • Slope
        • Standard Deviation (Volatility)
        • Stochastic Oscillator (Fast, Slow, and Full)
        • StochRSI
        • Traffic Light
        • TRIX
        • True Range
        • True Strength Index
        • TTM Squeeze
        • Typical Price
        • Ulcer Index
        • Ultimate Oscillator
        • Vortex Indicator
        • Weighted Close
        • Williams %R
      • Technical Overlays
        • Anchored VWAP
        • Bollinger Bands
        • Chandelier Exit
        • Double Exponential Moving Average (DEMA)
        • Hull Moving Average (HMA)
        • Ichimoku Cloud
        • Kaufman's Adaptive Moving Average (KAMA)
        • Keltner Channels
        • Linear Regression Forecast
        • Linear Regression Intercept
        • Moving Averages—Simple and Exponential
        • Moving Average Ribbon
        • Moving Average Envelopes
        • Parabolic SAR
        • Pivot Points
        • Price Channels
        • Triple Exponential Moving Average (TEMA)
        • Volume-by-Price
        • Volume-Weighted Average Price (VWAP)
        • ZigZag
    • Market Indicators
      • Introduction to Market Indicators
        • Market Indicator Dictionary
      • Advance-Decline Line
      • Advance-Decline Percent
      • Advance-Decline Volume Line
      • Advance-Decline Volume Percent
      • Arms Index (TRIN)
      • Bullish Percent Index (BPI)
      • DecisionPoint Intermediate-Term Breadth Momentum Oscillator (ITBM)
      • DecisionPoint Intermediate-Term Volume Momentum Oscillator (ITVM)
      • DecisionPoint Swenlin Trading Oscillator (STO)
      • High-Low Index
      • High-Low Percent
      • McClellan Oscillator
      • McClellan Summation Index
      • Net New 52-Week Highs
      • Percent Above Moving Average
      • Pring's Bottom Fisher
      • Pring's Diffusion Indicators
      • Pring's Inflation and Deflation Indexes
      • Pring's Net New High Indicators
      • Put/Call Ratio
      • Record High Percent
      • Volatility Indices
    • Market Analysis
      • Dow Theory
      • Sector Rotation Analysis
      • Intermarket Analysis
      • The DecisionPoint Chart Gallery
      • DecisionPoint Rydex Asset Analysis
      • Wyckoff Analysis Articles
        • Wyckoff Market Analysis
        • Wyckoff Stock Analysis
        • The Wyckoff Method: A Tutorial
      • Elliott Wave Analysis Articles
        • Introduction to Elliott Wave Theory
        • Identifying Elliott Wave Patterns
        • Guidelines for Applying Elliott Wave Theory
    • Trading Strategies & Models
      • DecisionPoint Trend Model
      • Trading Strategies
        • Bollinger Band Squeeze
        • CCI Correction
        • CVR3 VIX Market Timing
        • Faber's Sector Rotation Trading Strategy
        • Gap Trading Strategies
        • Harmonic Patterns
        • Hindenburg Omen
        • Ichimoku Cloud Trading Strategies
        • The 'Last' Stochastic Technique
        • MACD Zero-Line Crosses With Swing Points
        • Moving Average Trading Strategies
          • Finding Support and Resistance in Moving Averages
          • Guppy Multiple Moving Average: An MA Ribbon Designed to Tip the Market’s Hand
          • How To Trade Price-to-Moving Average Crossovers
          • Trading the Bounce: Finding Support and Resistance in Moving Averages
          • Trading the Death Cross
          • Trading Using the Golden Cross
          • Using the 5-8-13 EMA Crossover for Short-Term Trades
        • Moving Momentum
        • Narrow Range Day NR7
        • Percent Above 50-day SMA
        • Percent B Money Flow
        • The Pre-Holiday Effect
        • RSI(2)
        • Six-Month Cycle MACD
        • Slope Performance Trend
        • Stochastic Pop and Drop
        • Swing Charting
        • Trend Quantification and Asset Allocation
    • Index & Market Indicator Catalog
      • Advance-Decline Indicators
      • Cboe Indices and Indicators
      • CME Futures and Spot Prices
      • DecisionPoint Sentiment Indicators
      • Dow Jones Breadth Indicators
      • Dow Jones Global Indices
      • Dow Jones Select Indices
      • Dow Jones Titans Indices
      • Dow Jones US Indices
      • Economic Indicators
      • ICE Futures and Spot Prices
      • Intellidex Indices
      • MSCI Indices
      • New 52-week Highs and Lows for Exchanges
      • NYSE Arca Equity Indices
      • NYSE Equity Indices
      • Philadelphia Indices
      • S&P 500 Sector and Industry Groups
      • S&P GSCI Indices
      • StockCharts AD Percent
      • StockCharts AD Volume Percent
      • StockCharts Bullish Percent Index
      • StockCharts High-Low Index
      • StockCharts High-Low Percent
      • StockCharts Percent Above Moving Average
      • StockCharts Pseudo Symbols
      • StockCharts Record High Percent
      • StockCharts Theoretical Indices
      • US Treasury Yields
    • 📖Glossary
      • 📖Glossary - A
      • 📖Glossary - B
      • 📖Glossary - C
      • 📖Glossary - D
      • 📖Glossary - E
      • 📖Glossary - F
      • 📖Glossary - G
      • 📖Glossary - H
      • 📖Glossary - I
      • 📖Glossary - J
      • 📖Glossary - K
      • 📖Glossary - L
      • 📖Glossary - M
      • 📖Glossary - N
      • 📖Glossary - O
      • 📖Glossary - P
      • 📖Glossary - Q
      • 📖Glossary - R
      • 📖Glossary - S
      • 📖Glossary - T
      • 📖Glossary - U
      • 📖Glossary - V
      • 📖Glossary - W
      • 📖Glossary - X, Y, Z
    • Options Glossary
    • Educational Resources
Powered by GitBook
On this page
  • What Is the True Strength Index?
  • Calculating True Strengh Index
  • Interpreting the True Strength Index
  • Center Line Crossover
  • Trend Lines
  • Overbought/Oversold
  • Signal Line Crossovers
  • The Bottom Line
  • Using with SharpCharts
  • Suggested Scans
  • Bullish TSI Signal Line Cross
  • Bearish TSI Signal Line Cross
  • Further Study

Was this helpful?

Export as PDF
  1. Table of Contents
  2. Technical Indicators & Overlays
  3. Technical Indicators

True Strength Index

PreviousTrue RangeNextTTM Squeeze

Last updated 8 months ago

Was this helpful?

LogoLogo

ON STOCKCHARTS

  • Charts & Tools
  • Articles
  • StockCharts TV
  • ChartSchool

MEMBERS

  • Your Dashboard
  • Your ChartLists
  • Advanced Scans
  • Technical Alerts

HELP

  • Support Center
  • FAQs
  • Contact Us
  • Pricing

COMPANY

  • About Us
  • What's New
  • Careers
  • StockCharts Store

© StockCharts.com, Inc. All Rights Reserved.

What Is the True Strength Index?

Developed by William Blau and introduced in Stocks & Commodities Magazine, the True Strength Index (TSI) is a momentum oscillator based on a double smoothing of price changes. Even though several steps are needed for calculation, the indicator is actually pretty straightforward. By smoothing price changes, TSI captures the ebbs and flows of price action with a steadier line that filters out the noise. As with most momentum oscillators, chartists can derive signals from overbought/oversold readings, centerline crossovers, bullish/bearish divergences and signal line crossovers.

Calculating True Strengh Index

The True Strength Index (TSI) can be divided into three parts: the double smoothed price change, the double smoothed absolute price change and the TSI formula. First, calculate the price change from one period to the next. Second, calculate a 25-period EMA of this price change. Third, calculate a 13-period EMA of this 25-period EMA to create a double smoothing. The same double smoothing technique is used for the absolute price change. After these initial calculations, divide the double smoothed price change by the absolute double smoothed price change and multiply by 100 to move the decimal two places.

Double Smoothed PC
------------------
PC = Current Price minus Prior Price
First Smoothing = 25-period EMA of PC
Second Smoothing = 13-period EMA of 25-period EMA of PC

Double Smoothed Absolute PC
---------------------------
Absolute Price Change |PC| = Absolute Value of Current Price minus Prior Price
First Smoothing = 25-period EMA of |PC|
Second Smoothing = 13-period EMA of 25-period EMA of |PC|

TSI = 100 x (Double Smoothed PC / Double Smoothed Absolute PC)

The first part, which is the double smoothed price change, sets the positive or negative tone for TSI. The indicator is negative when the double smoothed price change is negative and positive when it is positive. The double smoothed absolute price change normalizes the indicator and limits the range of the ensuing oscillator. In other words, this indicator measures the double smoothed price change relative to the double smoothed absolute price change. A string of large positive price changes results in relatively high positive readings, signaling strong upside momentum. A string of large negative price changes pushes TSI deep into negative territory.

The table above comes from an Excel spreadsheet. Note that exponential moving averages are used in the calculations. These start with a simple moving average and then use a multiplier for calculation, which means additional historical data is needed to reach true values.

Click below to download a spreadsheet example.

Interpreting the True Strength Index

The True Strength Index (TSI) is an oscillator that fluctuates between positive and negative territory. As with many momentum oscillators, the centerline defines the overall bias. The bulls have the momentum edge when TSI is positive and the bears have the edge when it's negative. As with MACD, a signal line can be applied to identify upturns and downturns. Signal line crossovers are, however, quite frequent and require further filtering with other techniques. Chartists can also look for bullish and bearish divergences to anticipate trend reversals; however, keep in mind that divergences can be misleading in a strong trend.

TSI is somewhat unique because it tracks the underlying price quite well. In other words, the oscillator can capture a sustained move in one direction or the other. The peaks and troughs in the oscillator often match the peaks and troughs in price. In this regard, chartists can draw trend lines and mark support/resistance levels using TSI. Line breaks can then be used to generate signals.

Center Line Crossover

The centerline crossover is the purest signal. The double smoothed momentum of price changes is positive when TSI is above zero and negative when below zero. Prices are generally rising when TSI is positive and falling when TSI is negative. The example below shows Nike (NKE) turning bullish in September 2011 as TSI moved into positive territory (green line). The stock remained bullish as the uptrend extended into the spring of 2012. Nike turned bearish when TSI turned negative and the stock broke support.

Trend Lines

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. This breakout preceded further strength into August.

Overbought/Oversold

Overbought and oversold levels for the True Strength Index vary based on a security's volatility and the indicator's period settings. The TSI range will be smaller for stocks with low volatility, such as utilities. The TSI range will be larger for stocks with high volatility, such as biotechs. Using shorter time periods for the smoothing will result in a wider range and choppier indicator line. Longer time periods will result in a smaller range and smoother line. It's the classic technical analysis tradeoff—shorter periods provide quicker signals and less lag but at the cost of more whipsaws and false signals. Longer periods reduce the whipsaws, but the signals come with more lag and a less favorable reward-to-risk ratio.

The chart below shows the Nasdaq 100 ETF (QQQ) with TSI using two different timeframes. The upper indicator window shows TSI (40,20,7) fluctuating between -20 and +44 with 20/-20 marking overbought/oversold. The lower window shows TSI (13,7,7) fluctuating between +78 and -69 with 50/-50 marking overbought/oversold.

Notice how TSI in the lower window is much more volatile than TSI in the upper window. Also, notice that the more sensitive TSI produced two oversold readings and four overbought readings (blue arrows). Overbought and oversold are not signals of an impending reversal. They simply suggest that prices have come too far too fast. Chartists must wait for a confirming signal to suggest an actual reversal. The blue lines mark support and resistance using trend lines, peaks or troughs. Once an overbought or oversold reading occurs, chartists can use these lines to define a price reversal. This will not illuminate whipsaws, but it will reduce bad signals.

Signal Line Crossovers

The last parameter in the TSI setting is the signal line, which is simply an exponential moving average of TSI. Signal line crossovers are by far the most common signals, meaning there will be good, bad and ugly signals. In an effort to reduce signals and noise, chartists should consider increasing the settings for TSI or the price chart settings. The example below shows TSI(40,20,10) using a weekly chart. This means the signal line is a 10-period EMA of TSI. There was no shortage of signals on this chart as TSI crossed the signal line at least 12 times from April 2007 to July 2012.

The Bottom Line

The True Strength Index (TSI) is a unique indicator based on double smoothed price changes. Price change represents momentum in its truest form. The double smoothing with two exponential moving averages reduces the noise and produces an oscillator that tracks price quite well. In addition to the usual oscillator signals, chartists can often draw trend lines, support lines and resistance lines directly on TSI. These can then be used to generate signals based on breakouts and breakdowns. As with all indicators, TSI signals should be confirmed with other indicators and analysis techniques.


Using with SharpCharts

The True Strength Index (TSI) is available as an indicator for SharpCharts. Once selected, users can place the indicator above, below or behind the underlying price plot. Placing TSI directly behind the price plot accentuates the movements relative to the price action of the underlying security. Users can apply “advanced options” to add horizontal lines for setting overbought and oversold levels. Adjusting the numbers in the Parameters box will change the settings. Click here for a live example of TSI in action.

Suggested Scans

Bullish TSI Signal Line Cross

This scan reveals stocks where TSI is in positive territory. A bullish signal is triggered when TSI crosses above its signal line.

[type = stock] AND [country = US]
AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]

AND [TSI(40,20,10) > 0]
AND [TSI(40,20,10) x TSI Signal(40,20,10)]

Bearish TSI Signal Line Cross

This scan reveals stocks where TSI is in negative territory. A bearish signal is triggered when TSI crosses below its signal line.

[type = stock] AND [country = US]
AND [Daily SMA(20,Daily Volume) > 40000]
AND [Daily SMA(60,Daily Close) > 20]

AND [TSI(40,20,10) < 0]
AND [TSI Signal(40,20,10) x TSI(40,20,10)]

Further Study

John Murphy's Technical Analysis of the Financial Markets has a chapter devoted to momentum oscillators and their various uses. Murphy covers the pros and cons as well as some examples specific to Rate-of-Change. Martin Pring's Technical Analysis Explained shows the basics of momentum indicators by covering divergences, crossovers and other signals. There are two more chapters covering specific momentum indicators, each containing plenty of examples.

Technical Analysis of the Financial Markets John J. Murphy

Technical Analysis Explained by Martin Pring Martin Pring

Learn More. For more details on the syntax to use for TSI scans, please see our in the Support Center.

Scan Syntax Reference
213KB
cs-tsi.xls
Chart 1
Chart 2
Chart 3
TRUE STRENGTH INDEX USING TWO TIMEFRAMES.
Chart 5
Chart 6
Chart 7