Contents
Today I am going to describe one that is designed to measure the strength of the trend. It is known as the Trend Intensity Index. There are many technical analysis indicators that traders use to get better results.
Key Takeaways🔑
| →Trend Intensity Index (TII) is an oscillator that measures the strength of a trend in financial markets. |
| →Traders can use TII to identify potential buy and sell signals by observing line crossings at key levels. |
| →It is essential to test and refine TII-based strategies using a demo account before trading with real money. |
What is Trend Intensity Index?
This type of oscillator was invented by M. H. Pee. It measures the strength of the trend and produces trading signals. They are based on the supposition that the price will continue in the previous direction when the trend is strong.
The TII indicates a strong trend when its line falls below 20 or rises above 80 per cent. When it goes in the direction of the middle 50 line, it gives a signal the trend is getting weaker.
Chart preparations
First, log in to your IQ Option trading account. Choose the financial instrument for the session. Then, click on the Indicators icon. Choose the ‘Trend' type and the list of the indicators will unfold on the right side. Choose the Trend Intensity Index and it will be added to your chart.
How to read the Trend Intensity Index?
The TII is an oscillator. Its line moves below the price chart from 0 per cent to 100. The middle line 50 is also visible in the indicator window.
You may notice similarities to the Relative Strength Index or the Stochastic lines. The main principles for these three indicators are indeed the same.
2 trading methods based on the Trend Intensity Index
Now, I am going to present two basic trading methods that are based on the TII. You can use them as is or you can tweak them to create your own Trend Intensity Index trading strategy.
Using overbought and oversold areas of Trend Intensity Index
This trading system produces signals when the oscillator crosses the lines of 20 or 80. You should be prepared to buy when the TII line was below the level of 20% and now rises above it.
Sell when the oscillator crosses the 80 line from above.
Using a middle line of the Trend Intensity Index
This system is a bit less popular. It takes into account the middle line of 50 per cent. The rule is very simple.
Open a long transaction when the TII crosses the middle line from below.
Enter the short trade when the oscillator drops below the 50 line.
Pros and Cons of Trend Intensity Index (TII)👍👎
Pros:
- 💡 Helps traders identify the strength of a trend, making it easier to enter and exit trades at optimal times.
- 💡 Can be combined with other technical indicators to improve the accuracy of trading signals.
- 💡 Applicable to various financial instruments and timeframes, making it versatile for different trading strategies.
Cons:
- ❌ May generate false signals, especially during choppy or sideways markets.
- ❌ Requires additional tools or filters to improve signal accuracy and reduce false positives.
- ❌ Not suitable for inexperienced traders without thorough testing and practice using a demo account.
| Key TII Parameters | Typical Values |
|---|---|
| Overbought level | 80% |
| Oversold level | 20% |
| Neutral level | 50% |
| Complementary trend filter | Exponential Moving Average (EMA) with a period of 200 |
Summary
Trading with the use of the Trend Intensity Index is quite simple. It requires only that you observe the crossings of the important lines. There are, however, many false signals generated. That is why it is a good idea to complement the method with some trend filter. It can be, for example, the Exponential Moving Average with the period of 200.
For different assets, you can try different settings of the Trend Intensity Index. Do not forget to test the strategy in the demo account. IQ Option provides such an account for its users for free. It is supplied with virtual cash and you can refill it if needed. This way you do not risk your own money before you get to know the strategy well.
Wish you a good experience!
Common Questions About Trend Intensity Index (TII)❓
- Q: Can TII be used for short-term and long-term trading strategies?
A: Yes, TII can be applied to various timeframes, making it suitable for both short-term and long-term trading strategies. - Q: How does TII compare to other oscillators like RSI and Stochastic?
A: TII, RSI, and Stochastic share similar principles but focus on different aspects of price movements. TII measures the strength of a trend, while RSI measures the speed and change of price movements. Stochastic compares the closing price to the price range over a specific period. - Q: Can TII be used with other technical indicators?
A: Yes, TII can be combined with other technical indicators, such as moving averages or trendlines, to improve the accuracy of trading signals. - Q: How do I choose the best settings for TII?
A: The optimal settings for TII may vary depending on the financial instrument and trading style. It's essential to test different parameters using a demo account before trading with real money. - Q: Is TII suitable for beginners?
A: TII can be useful for beginners, but it requires thorough testing and practice using a demo account. It's crucial to understand the underlying principles and learn how to use TII in conjunction with other tools and filters to avoid false signals.