Introduction to the Trend Intensity Index (TII)

The Trend Intensity Index (TII) is a technical analysis indicator used to measure the strength and persistence of a trend. It was developed to help traders determine whether an asset is in a strong uptrend, a downtrend, or moving sideways. Unlike traditional trend indicators like Moving Averages or the Average Directional Index (ADX), TII focuses on comparing the asset’s closing price against a moving average to assess the intensity of the trend.

Calculating the Trend Intensity Index (TII)

The Trend Intensity Index is calculated using the following steps:

  1. Select a moving average period (typically a 20-period simple moving average (SMA)).
  2. Determine the number of periods where the closing price is above the SMA.
  3. Calculate the relative position of the closing prices compared to the moving average.
  4. Normalize the value on a scale of 0 to 100.

A TII above 80 indicates a strong uptrend, while a TII below 20 signals a strong downtrend.

Trading Strategies Using Trend Intensity Index (TII)

1. Trend Confirmation Strategy

Concept: Traders use the TII to confirm whether an existing trend is strong enough to continue or if it is losing momentum.

Buy Signal:

  • TII crosses above 50 from below.
  • TII stays above 60-70, confirming a strong uptrend.
  • Price remains above the 20-period SMA.

Sell Signal:

  • TII crosses below 50 from above.
  • TII stays below 30-40, confirming a strong downtrend.
  • Price remains below the 20-period SMA.

Example: Suppose a stock’s price is consistently closing above the 20-period SMA, and the TII crosses above 60. This confirms a strong bullish trend, signaling a buy entry.

2. Overbought and Oversold Trading Strategy

Concept: Similar to the RSI (Relative Strength Index), traders use TII to identify overbought and oversold conditions.

Buy Signal:

  • TII falls below 20, indicating an oversold market.
  • Price finds support and begins reversing upward.

Sell Signal:

  • TII rises above 80, indicating an overbought market.
  • Price shows signs of resistance and potential reversal.

Example: If a stock’s TII drops to 15, and price forms a reversal candlestick pattern (such as a bullish engulfing), a trader might consider entering a long position.

3. Divergence Trading Strategy

Concept: Divergence occurs when the price moves in the opposite direction of the TII, signaling potential trend reversals.

Bullish Divergence:

  • Price makes lower lows, but TII makes higher lows.
  • Indicates weakening downtrend and possible reversal.

Bearish Divergence:

  • Price makes higher highs, but TII makes lower highs.
  • Indicates weakening uptrend and potential reversal.

Example: If a stock is making new highs, but TII is declining, this suggests that momentum is weakening, and a bearish reversal could be imminent.

4. Breakout Trading Strategy

Concept: When TII confirms a breakout, traders can confidently enter trades in the breakout direction.

Buy Signal:

  • Price breaks above a resistance level.
  • TII crosses above 50 and continues to rise.

Sell Signal:

  • Price breaks below a support level.
  • TII drops below 50 and continues declining.

Example: If a stock breaks above a key resistance level at $100, and TII jumps from 45 to 70, this signals strong buying momentum, confirming the breakout.

5. Trend Reversal Strategy with Moving Averages

Concept: Combine TII with moving averages for early trend reversal detection.

Buy Signal:

  • Price crosses above the 50-period SMA.
  • TII moves above 50, confirming strength.

Sell Signal:

  • Price crosses below the 50-period SMA.
  • TII drops below 50, indicating weakness.

Example: If a stock has been in a downtrend but suddenly moves above the 50-day SMA, and TII crosses above 50, it suggests a bullish reversal.

6. TII + MACD Strategy

Concept: Combining TII with the Moving Average Convergence Divergence (MACD) increases trading accuracy.

Buy Signal:

  • TII crosses above 50.
  • MACD histogram turns positive.
  • Price confirms higher lows.

Sell Signal:

  • TII crosses below 50.
  • MACD histogram turns negative.
  • Price confirms lower highs.

Example: If TII is at 65, MACD is crossing above the signal line, and price is breaking out, this signals a high-probability buy setup.

Conclusion

The Trend Intensity Index (TII) is a valuable tool for assessing trend strength, confirming breakouts, identifying overbought/oversold levels, and detecting divergences. By integrating TII with other indicators like moving averages, MACD, and support/resistance levels, traders can develop high-probability trading strategies.

However, no indicator is foolproof. Traders should always use risk management, set stop-loss orders, and confirm signals with multiple indicators before placing trades. By mastering the TII, traders can gain an edge in trend-based trading strategies and improve their overall trading performance.