TRIX Indicator and Trading Strategies

TRIX Indicator and Trading Strategies

TRIX (Triple Exponential Moving Average) Indicator Strategies

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The Triple Exponential Moving Average (TRIX) is a powerful technical analysis tool designed to help traders determine the momentum of a price as well as identify overbought and oversold conditions in an underlying financial asset. TRIX was developed by Jack Hutson in the early 1980s, and as its name suggests, it is used to show the rate of change in a triple exponentially smoothed moving average.

Functionally, TRIX can be used as an oscillator as well as a momentum indicator. When used as an oscillator, it shows potential peak and trough price zones; and when used as a momentum (or trend following) indicator, it can filter out spikes in the price that are irrelevant to the overall dominant trend.

TRIX has also been described as the ‘impulse indicator’ that is capable of pointing out when there is a growing or sinking impulse in the market. Broadly, TRIX belongs to the Oscillators group of indicators. Other indicators similar to TRIX include the MACD (Moving Average Convergence Divergence) and RVI (Relative Vigour Index).

TRIX Calculation

TRIX, which is a triple smoothed EMA, is essentially an EMA, of an EMA, of an EMA, hence the “triple”. Exponential moving averages usually place more weight on current price data as opposed to simple moving averages that just calculate the average of prices, with equal weighting to all price data.

Most trading platforms use a default 14-period when calculating TRIX, but the parameters can be adjusted according to the needs of the trader.

Here are the steps followed when calculating a 14-period TRIX:

  1. Single-smoothed EMA = 14-period EMA calculated based on the price’s close
  2. Double-smoothed EMA = 14-period EMA of the single-smoothed EMA
  3. Triple-smoothed EMA = 14-period EMA of the double-smoothed EMA
  4. TRIX = 1-period per cent change of the triple-smoothed EMA

The calculation above will compute a TRIX indicator that swings above and below 0, generating positive and negative values.

Reading the TRIX Indicator

As mentioned above, TRIX can be used as both a trend following indicator and as an oscillator. As a trend following indicator, positive TRIX values imply that an uptrend is in place whereas negative TRIX values denote that a downtrend is in place in the market. When TRIX values run along the 0 value (centreline), it implies that the market stance is neutral.

As an oscillator, TRIX is used to watch out for overbought and oversold conditions in the market. Extreme positive values denote overbought conditions, while extreme negative values denote oversold conditions in the market.

Trading TRIX Signals

Here is how to trade the different types of TRIX signals:

  • Zero Line Cross
    As mentioned above, TRIX can help determine the ‘impulse’ of the market. With the 0 value as a centreline, if it crosses from below, it will be an indication that the impulse is growing in the market and traders can seek opportunities to place buy orders in the market. In the same manner, a cross of the centreline from above will signal a shrinking impulse in the market and traders can seek opportunities to place sell orders in the market.
  • Signal Line Cross
    To pick out optimal entry points, traders add a signal line on the TRIX indicator. The signal line is basically a moving average of the TRIX indicator, and as such, it will always lag behind the TRIX. A signal to place a buy order will occur when the TRIX crosses the signal line from below. Similarly, a signal to place a sell order will occur when the TRIX crosses the signal line from above. This is applicable in both trending and ranging markets. In trending markets, a signal line cross will signal that a price retracement is over, and the main trend will resume. In ranging markets, a signal line will confirm that resistance and support zones have been upheld in the market.
  • Divergences
    TRIX can also be used to identify when significant turning points can occur in the market. This is done by observing divergences. Divergences occur when the price is moving in the opposite direction as the TRIX indicator. When the price is making higher highs, but the TRIX is making lower highs, it indicates that the up-trend is weakening, and a bearish reversal is about to happen. Likewise, when the price is making lower lows, but the TRIX is making higher lows, it is a signal that a bullish reversal is about to happen.

Combining TRIX and Other Indicators

As an EMA-based indicator, the TRIX usually generates leading signals. It is, therefore, important to combine it with other indicators to pick out high probability opportunities when tracking a price.

Here are the best TRIX combinations:

  • TRIX and RSI
    The Relative Strength Index (RSI) measures the strength and momentum of a trend. When combined with TRIX, RSI can help provide definitive buy and sell signals when the price of an underlying asset is range-bound. A strong buy prompt will occur when both RSI and TRIX are in oversold territory and signal a potential reversal. Similarly, a strong sell prompt will occur when both RSI and TRIX are in overbought territory and signal a potential reversal.
  • TRIX and MACD
    The Moving Average Convergence Divergence (MACD) is a trend-following and momentum indicator. Combining MACD and TRIX can provide great signals for entering new trends and exiting when a reversal is about to happen. An entry signal will occur when the TRIX crosses the zero line and a crossover of the MACD happens. For instance, a buy order will be placed when the TRIX crosses the zero line from below and a crossover happens in the MACD oversold territory. An early exit signal will be provided when the MACD makes a crossover on the overbought territory, but patient traders can also wait for the TRIX to cross the zero line from the opposite direction.

Trading TRIX at AvaTrade

TRIX is available as an inbuilt and customisable indicator at AvaTrade. Here are the benefits of using the indicator at this regulated and award-winning broker:

Main TRIX Indicator and Trading Strategies FAQ

  • What is the TRIX indicator?
    The triple exponential average, known more commonly as the TRIX is a momentum indicator that is meant to filter out insignificant and unimportant price movements. Many consider it to be similar to the Moving Average Convergence/Divergence (MACD) indicator. It is by with one key difference. The TRIX indicator provides outputs that are smoother due to triple smoothing of the exponential moving averages used to create the indicator. It is an excellent indicator for identifying overbought and oversold market conditions.

     

     
  • What is the TRIX crossover strategy?
    The highest value of the TRIX indicator is in its ability to detect trend reversals, and it is that value that led to the development of the TRIX crossover strategy. The strategy is based on the idea that a crossover of the faster TRIX signal line over the slower TRIX line is a good indication of a trend change, and thus a good entry or exit point for trades. The basic settings for the TRIX lines are 12 periods for the TRIX line and 8 periods for the signal line. Traders can experiment with time frames to determine the best settings for their own use.

     

     
  • What is the TRIX Reversal trading system?
    The TRIX Reversal trading system is primarily a short-term trading system, making it an ideal choice for day traders. It is best suited to chart timeframes from 1 minute to 5 minutes, and uses a short-term TRIX of between 3-15 bars. The trade signal is based on the TRIX reversing direction, which indicates a short-term trend reversal and an entry or exit trade.

     

     

** Disclaimer – While due research has been undertaken to compile the above content, it remains an informational and educational piece only. None of the content provided constitutes any form of investment advice.

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