- What Is The TRIX Indicator?
- Benefits of Triple Exponential Average
- Disadvantages of the Momentum Indicator
- Trading TRIX Indicator Signals
- TRIX Calculation
- The Best TRIX Combinations
What Is The TRIX Indicator?
Technical traders use the triple exponential average (TRIX) to identify changes of percentages in a moving average and recognize markets that are overbought and oversold. The triple in its name comes from the fact that the moving average has been exponentially smoothed three times. If implemented as a momentum oscillator the positive value signals an overbought market and the negative value can identify oversold market.
The indicator was created in the ’80s of the previous century with the intention to reveal the rate of change in a triple exponentially smoothed moving average.
The indicator has three major components:
- Zero line
- TRIX line
- Percentage Scale
For analysts, any movement of the TRIX over the zero-line showed be interpreted as a buy signal. The opposite move should be implemented if the TRIX goes under the zero line. Possible separation of TRX and price can signal a notable landmark in the market.
Also Read: MACD Indicator: Does It Work?
Benefits of Triple Exponential Average
TRIX offers two advantages over other indicators that monitor trends. The first one is the proclivity to be a leading indicator and not lagging. The second advantage is that it is great for distilling market noise. Market noise is refined using the formula for the triple exponential moving average, by doing this it removes small short-term cycles that signal a change in market direction.
When used as a leading indicator, TRIX is the most productive the option is to be used in tandem with another market-timing indicator, that is why traders can reduce incorrect indications.
Disadvantages of the Momentum Indicator
The same problem that is encountered with every indicator is range-bound trading. The indicator starts intersecting when price action starts to entwine the three EMAs. This creates a compact range in the indicator that creates crosses under and above the zero line without a huge price move.
This is a big minus of the indicator it can produce false signals if the market is not in an impulse trend move.
Trading TRIX Indicator Signals
When trading with the TRIX indicator investors should be careful and implement the correct formula.
Signal Line Cross
To identify the most promising entry points, investors attach a signal line on the TRIX indicator. And that signal line is a moving average of the TRIX indicator, because of these it will lag behind the TRIX.
The signal to make a buy order will happen when the TRIX moves under the signal line. The opposite happens in other words a sell order is placed when the signal line is crossed from above. This is possible in ranging and trending markets.
In ranging markets, a signal line corroborates that resistance and support zones have been sustained in the market. While in trending markets, a signal line cross shows the end of the price retracement. The main trend resumes course.
Moving Average Convergence Divergence
Traders can use the TRIX to identify when crucial turning points take place in the market. They can reach this by searching for divergences. When the price is moving in the opposing direction as the TRIX indicator, then you have divergences.
If the price is reaching higher highs and the TRIX is at lower highs, this is a weakening up-trend and I can be interpreted as a forming of bearish reversal. If the price reaches lower lows, and TRIX achieves higher lows, that a bullish reversal is coming to the market.
Bullish and bearish divergences occur when the asset and the indicator do not validate themselves.
Bearish divergences are not possible in strong uptrends. It looks like momentum is weakening because the indicator is at lower highs, as long as it is over the centerline the momentum has a bullish bias.
If the security makes a lower low, and the indicator creates a higher low the bullish divergence can manifest. This higher low means less downside momentum that may foretell a bullish reversal.
When the asset creates a higher low, but the indicator shapes a lower high then it is a bearish divergence. The lower high signals fragile upside momentum that can indicate a bearish reversal sometimes.
Bullish and bearish divergences work, and the secret is to separate the bad signals from the good signals.
Zero Line Cross
TRIX can measure the impulse of the market. The 0 value is the centerline, if it goes from below, it will be mean that the impulse is progressing in the market. Traders can search for opportunities to make buy orders in the market. While a cross of the centerline from above means a reduced impulse in the market. Traders can search for chances to sell in the market.
When calculating TRIX traders use a default 14-period. Investors can modify the parameters depending on the needs of the trader. The steps you need to fallow in order to calculate the TRIX.
The Best TRIX Combinations
TRIX and MACD
The Moving Average Convergence Divergence (MACD) is a momentum and trend-following indicator. By combining MACD and TRIX you can get definitive signals for starting new trends and escaping the position when a reversal takes place. Potential entry signals appear when the TRIX crosses the zero line and a crossover of the MACD happens.
TRIX and RSI
The Relative Strength Index (RSI) measures the momentum and power of a trend. When combined with TRIX, RSI can offer excellent buy and sell indicators. It gives these signals mostly when the price of an underlying asset is range-bound.
A powerful buy indicator occurs when RSI and TRIX are in the oversold region and signal a possible reversal. While a good sell signal forms when both RSI and TRIX are in the overbought position and signal a possible reversal.
Also Read: Average Directional Movement Index
The best investment advice for traders that use technical analysis to look for a current price is that the TRIX indicator is not the best option among oscillators. It has flaws and can provide extremes in price action. Plus, you can measure impulse moves relative to historical price activity.
TRIX is an indicator that combines momentum with a trend. The triple-smoothed moving average covers the trend, while the 1-period percentage change measures momentum. TRIX is similar to MACD and PPO.
Traders looking for more sensitivity and should use a shorter timeframe. This makes it more volatile and more appropriate for centerline crossovers. Traders looking for less sensitivity should try a longer timeframe. This will smooth the indicator and make it better suited for signal line crossovers.
TRIX is incorporated on most trading platforms available online. Plus, it is relatively easy to calculate the indicator. The fact that it is part of trader’s arsenal for over three decades means that it is helpful resource in preparing trading strategies for retail investor accounts. Traders are advised to train themself in applying the indicator by gameplaying deferent scenarios.
The best idea for traders that look for trading signals with momentum indicators is to be aware that it is similar to any other technical indicators to use TRIX together with other technical analyses, and chart patterns. Insignificant price movements through price zones if not properly monitored can result in losing money rapidly for traders.
Is TRIX a Good Indicator?
TRIX can lead a market with its ability to measure the difference between each bar’s model of the price information. When interpreted as a leading indicator, it is most useful in combination with other market-timing indicators.
How do You Trade With TRIX?
Traders use zero line cross to feel the ‘impulse’ of the market. And signal line cross to pick out optimal entry points, traders add a signal line on the TRIX indicator. Divergences can also be used to identify when significant turning points happen in the market.
What Is the TRIX Stock Chart?
The TRIX stock chart shows the percent rate of change of triple exponentially smoothed moving average.
How do You Calculate TRIX in Excel?
You use the standard formula to calculate TRIX in Excel.