The Triple Exponential Average (TRIX) is a technical analysis oscillator that seeks to identify trends, generate buy and sell signals, and measure momentum in financial markets. It was developed by Jack Hutson in the 1980s.
TRIX calculates the percentage rate-of-change of a triple exponentially smoothed moving average (EMA) of price data. It attempts to filter out short-term fluctuations in price and focus on identifying the underlying trend. TRIX is plotted as a line graph which oscillates above and below a zero line.
The formula for calculating TRIX involves three steps:
- Calculate the single EMA, usually using a 15-day period, which provides smoothing to reduce noise in the data.
- Calculate another EMA of the result obtained in step 1, typically using a nine-day period.
- Calculate another EMA of the result obtained in step 2, usually using a nine-day period.
TRIX is obtained by finding the percentage difference between the current value of the third EMA and the previous day's value of the third EMA. The result is then multiplied by 100 for representation purposes.
Traders and analysts use TRIX in various ways. Here are a few applications:
- Identifying trends: TRIX helps determine the direction of the underlying trend. If TRIX is positive, it suggests a bullish trend, while a negative TRIX indicates a bearish trend.
- Generating signals: TRIX crossovers above or below the zero line can generate buy or sell signals, respectively. When TRIX crosses above the zero line, it can indicate a buying opportunity, and vice versa.
- Measuring momentum: Traders often look for divergences between the TRIX line and the price chart, which can indicate potential trend reversals or continuations. Bullish divergences occur when TRIX makes higher lows while prices make lower lows, suggesting a possible upward price reversal. Conversely, bearish divergences occur when TRIX makes lower highs while prices make higher highs, indicating a possible downward price reversal.
Just like any technical indicator, TRIX has its limitations. It may give false signals during choppy or sideways markets. Additionally, it is advisable to use TRIX in conjunction with other technical analysis tools or indicators to confirm signals and avoid making decisions solely based on TRIX readings.
Overall, TRIX is a useful tool for trend identification, generating signals, and measuring momentum in financial markets. Traders and analysts incorporate it into their strategies to gain insights into market conditions and make informed trading decisions.
How to use TRIX as a trend-following indicator?
To use TRIX (Triple Exponential Average) as a trend-following indicator, follow these steps:
- Calculate the TRIX line: Start by calculating the Exponential Moving Average (EMA) over a given period (typically 14 days) of the closing prices. Then, calculate the EMA of the previous EMA (second EMA). Finally, calculate the EMA of the second EMA (third EMA).
- Calculate the TRIX Signal Line: Calculate a shorter period EMA (typically 9 days) of the TRIX line obtained in step 1. This shorter period EMA acts as a signal line to confirm trends.
- Analyze the TRIX line and the Signal Line: When the TRIX line crosses above the Signal Line, it may indicate a bullish trend, and it could be a potential buying opportunity. When the TRIX line crosses below the Signal Line, it may indicate a bearish trend, and it could be a potential selling opportunity. The larger the divergence between the TRIX line and Signal Line, the stronger the trend.
- Use additional confirmatory tools: While TRIX is useful as a trend-following indicator, it should not be used in isolation. It is better to confirm the signals generated by TRIX by using other technical analysis tools, such as support and resistance levels, other trend indicators, or chart patterns.
Remember, no single indicator can guarantee accuracy in predicting market trends. It is always advisable to combine multiple indicators and perform a comprehensive analysis before making any trading decisions.
What are leading and lagging TRIX signals?
Leading and lagging TRIX signals are references to the timing of the signals produced by the Triple Exponential Average (TRIX) indicator.
- Leading TRIX Signals: Leading signals refer to signals that are generated ahead of price reversals. These signals attempt to identify potential trend changes before they occur. For example, when the TRIX line crosses above or below the signal line from below, it generates a leading buy or sell signal, suggesting an impending trend reversal.
- Lagging TRIX Signals: Lagging signals, on the other hand, occur after price reversals have already taken place. These signals confirm the validity of a trend change and can be used as confirmation indicators. For instance, when the TRIX line crosses above or below the signal line from above, it generates a lagging buy or sell signal, supporting the existing trend reversal.
The choice between leading and lagging TRIX signals depends on the trading strategy and individual preferences. Leading signals are more aggressive since they attempt to predict trend changes early on, but they may also result in more false signals. Lagging signals, being confirmation signals, are considered more reliable, but they are generated later in the trend change process, potentially missing out on some early profit opportunities.
What are the best timeframes to use TRIX?
The Triple Exponential Average (TRIX) indicator can be applied to various timeframes, depending on the trader's objectives and trading style. However, it is important to note that TRIX is primarily used as a trend-following indicator, and its effectiveness might vary across different timeframes.
Here are some commonly used timeframes for applying TRIX:
- Short-term trading: For short-term traders, such as scalpers or day traders, using lower timeframes like 1-minute, 5-minute, or 15-minute charts can be beneficial. This allows them to capture quick, short-term trend changes and make fast trading decisions.
- Medium-term trading: Traders interested in medium-term trends often focus on timeframes ranging from 1-hour to 4-hour charts. This timeframe can provide a more balanced view of the overall trend while still capturing shorter-term price movements.
- Long-term trading: Long-term traders and investors usually employ higher timeframes like daily, weekly, or even monthly charts. These timeframes are useful for identifying major trends and making long-term investment decisions.
Ultimately, the choice of timeframe should align with your trading objectives, risk tolerance, and time commitment to monitoring the market. It is advisable to test different timeframes and adapt your strategy accordingly to find the best fit for your trading style.