The Trend Intensity Index (TII) is a powerful technical analysis indicator designed to measure the strength of a market trend. Developed by M.H. Pee, as noted in sources like Linn Software, TII helps traders determine whether a trend in a stock, ETF, index, or other tradable security is likely to continue or reverse. Unlike the Relative Strength Index (RSI), which analyzes price momentum, TII focuses on the deviation of closing prices from a moving average, providing a unique perspective on trend strength. This tutorial explores the TII’s calculation, offers a practical example, and outlines its potential use cases for traders.
Introduction to the Trend Intensity Index
The TII is an oscillator that ranges from 0 to 100, with 50 as the neutral midpoint. According to MarketVolume, values above 50 indicate a bullish trend, while values below 50 suggest a bearish trend. Readings above 80 signal a strong bullish trend, and those below 20 indicate a strong bearish trend. The further the TII is from 50, the stronger the trend. This makes TII particularly useful for traders aiming to ride trends or anticipate reversals. By applying RSI-like principles to price deviations rather than closing prices, TII offers a distinct approach to trend analysis, as highlighted by StockManiacs.
How is the Trend Intensity Index Calculated?
The TII calculation, as detailed by sources like PatternsWizard, involves comparing the closing prices of the last 30 periods to a 60-period Simple Moving Average (SMA). Here’s a step-by-step breakdown:
- Calculate the 60-period SMA: Sum the closing prices of the last 60 periods (e.g., days, hours, depending on the timeframe) and divide by 60.
- Determine deviations: For each of the last 30 periods, subtract the 60-period SMA from the closing price. If the closing price is above the SMA, the deviation is positive; if below, it’s negative.
- Sum the deviations: Add all positive deviations to get SDpos and all negative deviations (absolute values) to get SDneg.
- Compute TII: Use the formula:
TII = 100 * (SDpos) / (SDpos + SDneg).
Optionally, a signal line, which is an Exponential Moving Average (EMA) of the TII, can be calculated to generate crossover signals, as noted by The Forex Geek. The TII’s range ensures it’s easy to interpret: values near 80 or above suggest a strong uptrend, while values near 20 or below indicate a strong downtrend. Movements toward 50 suggest a weakening trend.
Note: To visualize TII, consider adding a chart here showing the TII line overlaid on a price chart, illustrating how it tracks trend strength.
Example Calculation of TII
To make the calculation clearer, let’s use a simplified example with hypothetical data. Suppose we have closing prices for a stock over 10 days, and we adjust the periods for simplicity (10-period SMA and 5-period deviations). Below is a sample dataset:
| Day | Closing Price | 10-day SMA | Deviation (Close – SMA) | Positive Deviation | Negative Deviation |
|---|---|---|---|---|---|
| 1 | 50 | – | – | – | – |
| 2 | 51 | – | – | – | – |
| 3 | 52 | – | – | – | – |
| 4 | 53 | – | – | – | – |
| 5 | 54 | – | – | – | – |
| 6 | 55 | 52 | 3 | 3 | 0 |
| 7 | 54 | 52.1 | 1.9 | 1.9 | 0 |
| 8 | 53 | 52.2 | 0.8 | 0.8 | 0 |
| 9 | 51 | 52.3 | -1.3 | 0 | 1.3 |
| 10 | 56 | 52.4 | 3.6 | 3.6 | 0 |
For days 6–10, the sum of positive deviations (SDpos) is 3 + 1.9 + 0.8 + 0 + 3.6 = 9.3, and the sum of negative deviations (SDneg) is 1.3. Applying the formula:
TII = 100 * 9.3 / (9.3 + 1.3) ≈ 87.74
A TII value of 87.74, being above 80, indicates a strong bullish trend. In practice, traders would use 60 periods for the SMA and 30 for deviations, but this simplified example illustrates the process.
Possible Use Cases for TII
The TII is versatile and can be applied in various trading scenarios, as outlined by sources like TradingPedia. Here are the primary use cases:
- Assessing Trend Strength: TII values above 50 indicate an uptrend, while values below 50 suggest a downtrend. The further the value is from 50, the stronger the trend, helping traders gauge momentum.
- Generating Trading Signals:
- Long Entry: Enter a long position when TII crosses above 80, signaling a strong bullish trend, as recommended by Linn Software.
- Short Entry: Enter a short position when TII falls below 20, indicating a strong bearish trend.
- Signal Line Crossovers: Some traders use the EMA of TII (signal line) for additional signals. A buy signal occurs when the TII crosses above the signal line, and a sell signal when it crosses below, per The Forex Geek.
- Confirmation with Other Indicators: TII is most effective when used alongside other trend-following indicators, such as Moving Averages or MACD, to confirm signals and reduce false positives.
- Exit Strategy: Traders may exit positions when TII moves toward 50, indicating a weakening trend, as noted by TradingPedia.
- Application Across Markets: TII can be used on any timeframe and with various instruments, including stocks, forex, commodities, and cryptocurrencies, as mentioned by The Forex Geek.
Note: To enhance understanding, consider adding a chart here showing TII with buy and sell signals marked on a price chart, highlighting entries at 80 and exits near 50.
Conclusion
The Trend Intensity Index (TII) is a valuable tool for traders seeking to understand and capitalize on market trends. By measuring the strength of price deviations from a moving average, TII provides clear insights into whether a trend is robust or fading. Its calculation is straightforward, and its applications—ranging from trend assessment to generating entry and exit signals—make it versatile for various markets and timeframes. For best results, combine TII with other technical indicators and practice on a demo account to refine your strategy. Explore more about TII and other indicators on platforms like TradingPedia to deepen your trading knowledge.