True Strength Index - TSI

DEFINITION of 'True Strength Index - TSI'

A technical momentum indicator that helps traders determine overbought and oversold conditions of a security by incorporating the short-term purchasing momentum of the market with the lagging benefits of moving averages. Generally a 25-day exponential moving average (EMA) is applied to the difference between two share prices, and then a 13-day EMA is applied to the result, making the indicator more sensitive to prevailing market conditions. After the data is smoothed, some calculations are done to make the indicator fall in a range from +100 to -100, or from +1 to -1.

BREAKING DOWN 'True Strength Index - TSI'

A signal line (7-day EMA) is usually added - as it is to the moving average convergence divergence indicator - to help identify reversals. In addition, values of -25 and +25, like the levels of 30 and 70 used in the relative strength index, can also be used to identify levels where a security is overbought or oversold. The true strength indicator is a variation of the relative strength index.

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