The Trend Intensity Index (TII) is a technical indicator used to measure the strength of trend of a financial trading instrument in order to gauge future price trend development. The Trend Intensity Index is based on an article by M. H. Pee that was available in the June 2002 issue of Stocks and Commodities Magazine. The Trend Intensity Index (TTI) indicator can help determine the strength of the current market trend. The TII range is between 0 and 100, where typically a value above 50 is a bullish trend, and a value below 50 is a bearish trend.
What is the Trend Intensity Index?
The Trend Intensity Index ranges between 0 and 100. If the indicator shows a value beyond 50.0, it is considered as bullish trend. Conversely, if the value of indicator is below the 50.0 mark, it is taken as a bearish trend. The distance from 50.0 mark also determines the strength of a trend. Like, if the TII value is near 80, it means that the trend is strongly bullish. Similarly, if the TII value is near 20.0 then it is considered strongly bearish trend.
The 20.0 and 80.0 levels hold importance as well. The bullish entry is valid when the TII value reaches 80 or above while the bearish entry is valid when the TII value reaches 20 or below it.
Trend Intensity Index (TII) calculation
The SMA (60-period) is first calculated and the resultant is divided by 60. Then the deviation of the past 30 closing prices are estimated in the last 60 periods. If the close price is above the SMA, then the deviation is up. The up deviations can be calculated by subtracting the SMA from close price. Similarly, down deviation can be calculated by subtracting the close price from SMA.
The 30-period Trend Intensity index is calculated as follows:
TII = (SD+) / ((SD+) + (SD-)) x 100, where
- SD+ equals the sum of up deviations of the recent 30 days
- SD- equals the sum of down deviations of the recent 30 days
How to use the Trend Intensity Index indicator?
The Trend Intensity Index is not a default indicator in the Metatrader platform. Therefore, you have to download and install in your trading platform. The default setting of the indicator is “Close”. However, you can set it to open, high or low as well. You can use the indicator on any timeframe and on any currency pair or other trading instrument including stocks, commodities, indices and cryptocurrencies.
TII crossover
There are two lines in the indicator window; one is signal line and the other is TII line. If the signal line crosses the TII line from above, then a long signal is generated. Similarly, if the signal line crosses the TII line from below, a short signal is generated.
TII 50.0 level
You can use the TII indicator to trade with it’s 50.0 level. Simply, add the level 50.0 and go long when the TII line crosses the 50.0 level to the upside. Similarly, go for short entry when the 50.0 level is crossed by the TII line to the downside.
Trend Intensity Index trading strategy
Trend Intensity Index visually looks the same as Stochastics and RSI (Relative Strength Index) indicators. Furthermore, the main principles of technical analysis and generating trading signals on these indicators are similar and those traders who worked with Stochastics and RSI should not have trouble applying analysis to TII.
The Trend Intensity indicator measures the strength of the trend. The indicator is defined as: TI = SMA(7)/SMA(65) * 100. So, trend intensity is calculated as the value of the 7 day moving average divided by the 65 day moving average.
One possible method of generating signals could be considered as the most popular. It is based on the crossovers of TII and two horizontal signal lines – traditionally at 20% and 80% levels. However, I would make sure to filter all signals with additional market analysis for further confirmation before taking a position.
The TII indicator can be used as standalone indicator in the trading but in this TTI trading strategy example we will include the SMA-50 with it to further help us filter the false signals.
Trend Intensity Index buy strategy
- The signal line should cross the TII line from above.
- The TII value should be near 20.
- The price should be above the SMA-50.
- Wait for the green arrow to appear before entry.
- The stop-loss can be placed near swing low.
- The take-profit can be at least the same size as stop-loss.
Trend Intensity Index sell strategy
- The signal line should cross the TII line from below.
- The TII value should be near 80.
- The price should be below the SMA-50.
- Wai for the red arrow to appear before entry.
- The stop-loss can be placed near swing high.
- The take-profit can be at least the same size as stop-loss.
Trend Intensity Index conclusion
The TII indicator uses RSI principles of calculation applied to the closing price deviations instead of the closing prices. In technical analysis Trend Intensity index is used to generate trading signals on assumption that the stronger current trend is, the more likely analyzed stock (index, ETF, etc.) will continue moving in the direction of the current trend.
Like any other oscillator, the Trend Intensity Index ranges from 0 to 100. If the indicator value is beyond 50.0, it shows a bullish trend while if the TII value is below 50.0, it is a bearish trend. The indicator value near 100 is taken is strongly bullish while the value near 0 is taken as strongly bearish.
The trend intensity index indicator can be used on your trading platform charts to help filter potential trading signals as part of an overall trading strategy.
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