True Strength Index (TSI) – What It Is & How to Trade with It

True Strength Index (TSI) – What It Is & How to Trade with It

What is the True Strength Index (TSI)?

The True Strength Index (TSI) is a momentum-based oscillator developed by William Blau to measure trend strength and momentum shifts. It smooths price changes to reduce market noise and provides clearer trading signals compared to traditional momentum indicators.

The TSI formula is:
TSI = (Double Smoothed Momentum / Double Smoothed Absolute Momentum) × 100

Where:

• Momentum = Current Price – Previous Price
• Double Smoothed Momentum applies two EMA calculations to smooth fluctuations.

Key Features of True Strength Index

• Measures momentum with a smoothed calculation to reduce noise.
• Identifies trend reversals and overbought/oversold levels.
• Works well in both trending and ranging markets.

How to Use TSI in Forex Trading

1. TSI Crossover Strategy

Traders use crossovers between the TSI line and the Signal line to generate trade signals:

• Buy Signal: When TSI crosses above the Signal line (bullish momentum).
• Sell Signal: When TSI crosses below the Signal line (bearish momentum).

2. Zero Line Crossover Strategy

The zero line acts as a trend confirmation tool:

• Buy Signal: TSI crosses above zero, indicating an uptrend.
• Sell Signal: TSI crosses below zero, indicating a downtrend.

3. TSI Divergence Strategy

Divergence between price and TSI can indicate trend reversals:

• Bullish Divergence: Price forms a lower low, but TSI forms a higher low (buy signal).
• Bearish Divergence: Price forms a higher high, but TSI forms a lower high (sell signal).

4. TSI with Moving Averages

Pairing TSI with a moving average (e.g., 50 EMA) helps confirm trade signals:

• Buy when: TSI is above zero & price is above the 50 EMA.
• Sell when: TSI is below zero & price is below the 50 EMA.

Pros and Cons of Using True Strength Index

✅ Pros:

• Reduces false signals by smoothing momentum.
• More accurate than RSI or MACD in some market conditions.
• Works well for detecting trend reversals.

❌ Cons:

• Can lag in fast-moving markets.
• Requires additional confirmation for best results.

Final Thoughts

The True Strength Index (TSI) is a powerful momentum oscillator that helps traders identify market momentum, confirm trend strength, and detect reversals. When combined with moving averages or divergence analysis, TSI enhances trade accuracy and decision-making.