TSI Indicator Guide
The TSI indicator for MT4 is an abbreviation for the True Strength Index Indicator for Metatrader 4. It is used in technical analysis to evaluate the speed and strength of the price movement of a certain asset. In fact, the TSI indicator for Metatrader 5 (MT5) lands in the category of momentum indicators. In this article, we will talk about the TSI Indicator in detail and explain how to use it.
True Strength Indicator FAQ
What is the TSI Indicator?
The True Strength Index indicator is a momentum oscillator used in technical analysis to identify current trends. The indicator was first developed by William Blau in 1991 and published in “Stocks & Commodities Magazine”. And has since been a crucial part of decision-making for technical traders. It is based on double smoothing of price changes and therefore, it is a pretty straightforward indicator. Also, the indicator is based on mathematical and statistical measures such as the Moving Averages and exponential values. The indicator fluctuates between positive and negative areas. The positive area means that the trend is bullish whereas the negative area means that the trend is bearish.
How does the TSI Indicator?
The TSI Indicator for MT4 displays values that range between -100 and +100 and has a base value of 0. The indicator consists of 2 lines :
- The first one is the index line.
- The second one is an exponential moving average of the true strength index.
To calculate the TSI indicator, you first calculate the PC (Price Change) for every period by subtracting the previous period’s price from the current price. Next, you determine a 25-period EMA from these price change values to smooth the MA.
Then, you double-smooth the EMA by determining a 13-period EMA from the already calculated 25-period EMA. After determining these points, you can calculate the TSI Indicator. You get the result by dividing the double smoothed price change by the absolute price change values of a double-smoothed EMA and then multiplying the result by 100.
What are the benefits of using it?
The TSI indicator for MT4 is quite efficient, in fact, the indicator has many advantages. Some of them are as follows:
- The indicator is basically a combination of smoothed Moving average and momentum. It makes it reliable and less affected by short-term fluctuations.
- The Double smoothing technique makes the current or upcoming trend clearer and therefore, more accurate results.
- The True Strength Index Indicator is useful for identifying and assessing the current trend strength.
- The TSI indicator can detect overbought and oversold conditions of a certain asset. Therefore, traders and investors could use this information to go short or long over the observed asset.
- The indicator could also detect divergence if the asset price and the output of the indicator aren’t the same.
How to trade with the True Strength Index Indicator?
The value 0 acts as the centerline, distinguishing positive from negative territory. If the TSI indicator for MT5 enters positive territory, the current or upcoming trend is bullish, indicating that bulls control the market and the asset is oversold. On the other hand, if the TSI enters negative territory, bears control the market, and the asset becomes overbought.
Remember, the higher the value, the stronger the trend. Moreover, the TSI Indicator allows traders to spot divergence signs, centerline crossovers, and signal line crossovers.
Example
First of all, we have already talked about the centerline crossovers where we stated that the centerline is equal to 0. And that the TSI line will fluctuate between the 2 territories crossing the centerline on each reversal.
As for the signal line crossovers, in simple terms, if the TSI is below the EMA and then goes above it, then it’s probably a buy signal. However, if the TSI is above the EMA and then goes below it, then it’s probably a sell signal.
Finally, sometimes divergences could occur, for example, if the TSI line is going in one direction and the candlesticks are going in the other direction, the TSI is probably right and traders should not be fooled by the price movement.
Is TSI a lagging indicator?
While there are different types of indicators, a lagging one is an indicator that follows a trend and confirms it after it has already started or occurred. It provides a historical view of the asset and is used to identify the current trend or early reversal signs. Therefore, the TSI is indeed a lagging indicator as it helps traders detect the current trends and any potential reversal signs. In other words, the TSI is a lagging indicator because it confirms price trends and helps traders identify overbought and oversold assets. Furthermore, this affirmation is supported by the fact that the TSI indicator calculates the strength of price movement based on the difference between two smoothed moving averages of price changes. Also, the indicator relies on historical data to calculate moving averages and smooth them out to make the current trend more visible.Download the TSI indicator for Metatrader 4 (MT4)
Tsi indicator for MT4 is a lagging indicator follows and confirms a trend only after it starts or occurs. It offers a historical perspective of the asset and helps identify the current trend or early signs of reversal.
Therefore, the TSI is indeed a lagging indicator as it helps traders detect the current trends. In other words, the TSI is a lagging indicator because it confirms price trends. It helps traders identify overbought and oversold assets.Moreover, the TSI indicator’s calculation supports this claim, as it measures the strength of price movement using the difference between two smoothed moving averages of price changes. Also, the indicator relies on historical data to calculate moving averages.
Download the TSI indicator for Metatrader 5 (MT5)
The TSI Indicator is also available for the MT5 platform (MetaTrader 5). The indicator offers the same exact features as the version available for the MT4. Meaning that it is fully customizable, ranging from the (25/13) rule up to colors, centerline, and max high and low values line.
Example
The following example displayed the USD vs Japanese Yen Chart over a 4-hour timeframe. The TSI indicator is applied to it, as the EMA line is dotted in red whereas the TSI line is in white.
The indicator has detected 3 major points that we are going to explain in detail.
First of all, the TSI line crossed the EMA line and went below it, and shortly after both lines crossed the centerline and went into the negative territory. This indicated that a downtrend has started, but it was short and ended at point B. In other words, the TSI went above the EMA line at point B and both lines started moving toward the positive territory indicating the start of an uptrend.
It was a towering uptrend but unfortunately it didn’t last long as the TSI went below the EMA at point C few days later. And both lines started getting near the centerline and towards the negative territory.
Download the TSI indicator for Tradingview Platform
The TSI Indicator is also available for tradingview platform. It offers the same features are the versions available for Metatrader.
The following chart represents the Tesla company stock price movement that is traded on the NASDAQ stock exchange. Over a 1-day timeframe with the TSI indicator applied to it, we can observe 2 major points.
- Starting from October, the TSI line went above the EMA line indicating an uptrend. also, both lines went up deep in the positive territory which proves the strength of the trend.
- By the end of the first week of November, the uptrend ended as the TSI went below the EMA. The TSI indicator confirms the start of a downtrend as the 2 lines made a leap in the negative territory.
Conclusion
- The TSI Indicator for MT4 and MT5 is a momentum oscillator that helps traders identify trends and assess their strength.
- The indicator is constructed using moving averages that are smoothed twice. The goal is to remove fluctuation so that the price direction gets clearer.
- The True Strength Index Indicator is composed of 2 lines. The first line is the TSI line and the second one is an EMA also called signal line.
- When the TSI line goes above the EMA line, it indicates an uptrend.
- When the TSI line goes below the EMA line, it indicates a downtrend.
- The value in the middle is 0 and the max and min values are respectively +100 and – 100. However, most values fall between +40 and – 40.
- Traders should look for centerline crossovers, signal line crossovers, and divergence signs while using this Metatrader 4 indicator.
