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10.40 Trend Intensity Index

The trend intensity index (TII) by M. H. Pee measures the strength of a trend, by looking at what proportion of the past 30 days prices have been above or below the level of today’s 60-day simple moving average (see Simple Moving Average).

The 60-day average is as of today, not its past values at each of those past 30 days. For each day the deviation close-avg is taken. Positive amounts are up deviations, and negative amounts have the sign discarded and are down deviations.

up   = /  close - average   if close > average
       \        0           otherwise

down = /  average - close   if average < close
       \        0           otherwise

The percentage of the total up amounts out of total up and down amounts is then the trend intensity index,

                  total up
TDI = 100 * ---------------------
            total up + total down

The extreme of 100 occurs when all closes in the past 30 days have been above today’s 60-day moving average level, and conversely the extreme of 0 when all below that level.

Visually the index is like looking at the area under the graph of prices. The area above a horizontal line at today’s 60-day moving average is the up amounts, the area below it is the down amounts, and the index is the fraction of the up out of the total.

Pee recommended entering trades when levels of 80 on the upside or 20 on the downside are reached. Lines are shown in Chart at those levels, as is 50 which is a neutral level.

The 60 and 30 days are configurable (see View Style). Any values are accepted, but it probably doesn’t make much sense to have the MA period (60) shorter than the deviations period (30). Certainly it makes no sense to have the two equal, because the up deviations are then always exactly 50% of the total.

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