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The True Strength Index (TSI) is a momentum indicator developed by William
Blau, published in "Momentum, Direction and Divergence" (Wiley 1995). It is designed to determine both the trend and overbought-oversold conditions. The TSI is applicable to intraday time frames as well as longer-term horizons.
The TSI uses a one period close price difference to measure momentum, and a double exponential moving average to smooth the erratic price pattern difference. The indicator combines the leading characteristic of a differencing momentum calculation with the smoothing albeit lagging characteristic of an averaging function; the net result is that the final index value has less lag than we would normally expect for the EMA period, while the index line is quite smooth. In order to normalize the index value (between +100 and -100 ) the smoothed one day momentum is divided by the smoothed version of its absolute value.
Typical use of the TSI will be trend detection, as the indicator crosses its own simple moving average. Typically it is drawn with a 3 or 7 period SMA as a signal line for this crossover. Another use is determining overbought and oversold conditions, where the default values are +25 and -25 respectively.
Drawing the TSI with 20-10 smoothing periods and 3 period signal line:
p = TSI(20,10);
Plot(p,"TSI",colorBlack,chartLine,styleOwnScale);
s=sma(TSI(20,10), 3);
Plot(s,"TSI-SMA",colorBlue,chartLine,styleOwnScale);
