But in my opinion, the True Strength Indicator (TSI) is equally important and one of the most reliable indicators to check the trend and direction of a coin.
Let's know about True Strenght Indicator in detail and also how you can use TSI in scalping?
What is a True Strength Indicator?
The TSI is a momentum oscillator that is used to check the market's traction and strength.
Most traders use the TSI to check the market's trend and direction.
How True Strength Indicator (TSI) calculated?
To better understand how the True Strength Indicator works, it's important to understand the mechanism behind it.
TSI is divided into three parts,
The double smoothed price change
The double smoothed absolute price change
The TSI formula
So, first, the True Strength Indicator calculates the price's one-day momentum, and then it calculates a 25-period EMA of that price to produce a much less noisy line that reflects the trend direction, and then it calculates the 13-period EMA of this 25-period EMA, to get an extra-fine line, in short, it creates a double smoothing.
The same is calculated for absolute price change, after calculating both, then the first one is divided by the second one to remove two zeroes in the end we multiply it by 100.
Traders mostly use it to identify oversold and overbought levels, buyers have an edge when TSI is positive and sellers have an advantage when it’s on the negative side, and today we are going to use it for the centreline crossover.
How to use the True Strength Indicator in trading strategy?
So, the trading strategy I am going to talk about is a breakout strategy,
A breakout is a pattern that occurs when the price breaks through a key resistance level and spikes up in a short period of time as traders realize that the price can go higher and sellers begin to get overrun and vice versa.
Now, as you can see, the TSI has three lines,
The horizontal line is known as the zero line or centreline while,
the other two lines are known as plots, and these are the ones that provide us with the signals.
TSI always revolves around the zero line and can be a positive or negative value,
Now, we have to find the breakouts in the coin, and find that we are going to focus on the direction of the future trend by analyzing the centreline crossover,
As you can see the zero line in the above pic with that a buying signal are generated when the TSI rises above the zero line, this goes on when until the volatility settles down, and a selling signal is generated when TSI crosses below the zero level,
Signal line crossovers are by far the most common signals, meaning there will be good, bad, and ugly signals. In an effort to reduce signals and noise, chartists should consider increasing the settings for TSI or the price chart settings.
Also Read: How to spot pump and dump in cryptocurrency
Examples of The True Strength Indicator strategy
The example below is Ethereum against USDT, which shows TSI(25,12,1) using a 5-minute chart. And as you can see there was no shortage of signals on this chart as TSI crossed the signal line at least 11 times in a single day.
The example below is Bitcoin against USDT, showing the same TSI using a 5-minute chart, and as you can see TSI crossed the signal line at least 8 times in a single day.
And, unlike other oscillators, the TSI can be used to check both the trend direction and trend strength, eliminating the need to monitor two separate indicators.
In other words, TSI may prove to be one of the best technical indicators for assisting you to enhance your trading by maintaining your winning trade.
That’s it for now.