True Strength Index (TSI): Trading Momentum Crossovers
The Dimension of Smoothness: What is TSI?
Developed by William Blau in the early 1990s, the True Strength Index (TSI) is one of the most sophisticated momentum oscillators in technical analysis. While standard oscillators like the RSI or Stochastic use a single-period change, the TSI uses a Double-Smoothing process (an EMA of an EMA) to remove nearly all market 'Noise' while still reacting quickly to structural momentum shifts.
The TSI fluctuates between -100 and +100. It is a 'pure' momentum indicator that tells you not just if the price is moving, but if that move has structural 'Weight' behind it. It's especially effective in trending markets for identifying the exact points where momentum begins to exhaust.
Double Smoothing Explained: EMA of an EMA
The secret of the TSI is its two-step calculation process: 1) First Smooth: A long-term EMA is applied to the raw price change. 2) Second Smooth: A short-term EMA is applied to the first result. This process eliminates 'insignificant' price fluctuations whilst maintaining the core directional energy of the move.
This makes the TSI significantly 'Steeper' and more reliable than the MACD or standard ROC indicators. It identifies the structural energy of a new trend before it is even visible in the price action.
{ TSI Execution Checklist }
Primary Setting: 25-period Long EMA, 13-period Short EMA
Signal Setting: 13-period Signal Line EMA
Bullish: TSI crosses above Signal Line
Bearish: TSI crosses below Signal Line
Avoid: Trading crossovers near the zero-line (Noisy)
Zero-Line: Above 0 means bullish structural regime
Filter: Align with a 50-period Hull Moving Average
Strategy: Signal Line Crossovers and Zero-Line Rejection
The Crossover Setup: Professional traders use a 'Signal Line' (usually a 13-period EMA of the TSI). When the TSI crosses above the signal line, it identifies a structural bullish momentum breakout. If the crossover occurs below the zero-line, it is a reversal signal. Zero-Line Rejection: In a strong bullish trend, the TSI should stay above zero. If it pulls back slightly but 'Rejects' (bounces) off the zero-line without crossing into negative territory, it’s a high-probability continuation signal, showing that the institutional commitment to the trend is still intact.
Warning: Overbought and Extreme Readings
While the TSI is non-bounded, readings above +50 or below -50 are considered extreme. If the TSI crosses its signal line at these extreme levels, it’s an early warning that the trend is entering a final 'Blow-off' phase. This is the optimal time to start scaling out of positions or tightening trailing stops.