True Strength Index (TSI)
long_period = 25 (15–40) • short_period = 13 (5–25) • signal_period = 9 (5–15) Overview
The True Strength Index employs a unique double-smoothing technique that sets it apart from other momentum oscillators. By first applying a 25-period EMA to price changes, then smoothing the result with a 13-period EMA, the TSI effectively reduces market noise while preserving the underlying momentum characteristics. This double smoothing is applied to both the price change and its absolute value, with the final TSI calculated as 100 times the ratio of smoothed price change to smoothed absolute price change, creating an oscillator that ranges from -100 to +100.
What makes TSI particularly effective is its ability to track price movements closely while filtering out insignificant fluctuations. The indicator's peaks and troughs often correspond directly with price extremes, allowing traders to draw trendlines and identify support/resistance levels directly on the TSI. When combined with its signal line (typically a 9-period EMA), the TSI provides multiple forms of trading signals including crossovers, divergences, and breakouts, making it a versatile tool for both trend-following and counter-trend strategies.
Interpretation & Trading Signals
Key Zones & Levels:
- Strong Bullish (+25 to +30): Overbought zone, potential reversal area
- Moderate Bullish (+15 to +20): Upward momentum building
- Centerline (0): Momentum neutral point, trend bias indicator
- Strong Bearish (-25 to -30): Oversold zone, potential bounce area
Trading Signals:
- Centerline Cross: TSI above 0 = bullish bias, below 0 = bearish bias
- Signal Line Cross: TSI crossing above signal = buy, crossing below = sell
- Reliable Zones: Buy signals above +20, sell signals below -20
- Trendline Breaks: Draw lines on TSI itself for breakout signals
Divergence Trading:
- Bullish Divergence: Price makes lower lows, TSI makes higher lows
- Bearish Divergence: Price makes higher highs, TSI makes lower highs
- Hidden Divergence: Trend continuation signals in strong trends
- Filter Signals: Combine with price action to reduce false signals
Example Usage
Code examples will be available once the Rust implementation is complete.
Performance Analysis
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