Trend Strength Index

Frank Hassler introduced this measurement. It was discussed on Frank's Blog Engineering Returns http://engineering-returns.com/2010/06/28/aapl-ts/, and it was highlighted and researched by David Varadi of CSS Analytics in his blog http://cssanalytics.wordpress.com/2010/06/28/trend-strength-index-tsi/, and subsequent posts.

David uses the following summary of TSI: "The TSI is an intermediate-term absolute (versus relative ) measure of the tendency of a stock to trend or mean revert. The premise underlying the theory is that stocks with a high degree of momentum in relation to volatility are much less likely to mean-revert than those that have a low degree of momentum in relation to volatility."

TSI shows promise in being used as a superior replacement for the ADX. It can be looked at to help determine when a security is trending or mean reverting, and it can also be used as a filter or ranking element within a system.

The formula works as follows:

TSI = Average(Average(Ratio,10),100)
Ratio = (abs(today's close - close of 10 days ago) / atr(10)
atr10 is 10 day average true range


Scott Walker & Michael Walker

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