TRIX (Triple Exponential Moving Average)

Introduction

Anyone who has acquainted himself with the landscape of stock trading will eventually come across the likes of moving averages or any number of indicators that task themselves with discerning the myriad of unique circumstances or situations within this market. They’re just that popular and for good reason too.

Depending on what you’re looking for you can get the SMA, the EMA, the RSI, the DEMA, or the WMA, with most of them being some iteration on the standard moving average. But we won’t be discussing any of those here. What we’ll be looking at instead is the TRIX indicator, which basically stands for the Triple Exponential Moving Average.

What is TRIX (Triple Exponential Moving Average)?

What is TRIX then? Simply put it’s another one of those momentum indicators that you usually see the more technical-minded traders using, largely to show the percentage change within a moving average (MA) that’s been exponentially smoothed thrice, as its name suggests.

That triple smoothing of MAs is made to filter out insignificant price movements. Another interesting fact is how traders implement it to create signals that are somewhat similar to the MACD indicator, or the moving average convergence divergence.

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The Purpose of TRIX

Its inception can be traced as far back as the 1980s, first developed and introduced by Jack Hutson. The tool’s popularity cannot be understated and chartists use it to spot diversions or directional cues typically found within stock trading patterns. 

While you may think TRIX to be similar to the MACD the thing that sets them apart is that TRIX is just the smoother out of the two because of its triple smoothing of the EMA.  

But what purpose does it actually serve you might be wondering. Well, while we stated earlier that it’s a momentum indicator it can be used as this powerful oscillator too, mainly used to identify overbought and oversold conditions within the markets. Like many others of its kind, TRIX oscillates about a zero line.

And when it’s used like an oscillator, extreme positive values indicate overbought conditions whereas extreme negative values indicate oversold markets.

But when you see it being used as a momentum indicator positive values would naturally imply increasing momentum whereas negative values would indicate the exact opposite, i.e., decreasing momentum. 

A lot of analysts assume that when TRIX goes beyond that zero line, you have a buy signal and when it goes below it’s a sell signal. Not only that but any divergences between TRIX and price may also suggest substantial turning points within the market.

How is TRIX Calculated?

Although any trading platform that supports TRIX will automatically calculate the values for you, if you still want to know how its exactly calculated then read on. Firstly, as you already know by now, TRIX is a triple smoothed EMA, and that just means that it’s the EMA of an EMA of an EMA. 

Exponential moving averages are typically more focused on recent price data while your simple moving averages place equal weighting  on every price data. Many trading platforms tend to use 14 periods as their default when calculating TRIX, with the parameters being adjusted according to every traders’ needs.

TRIX Formula

So, here’s the steps you need to do to calculate the TRIX for 15 periods.

• Single-smoothed EMA = 15-period EMA calculated based on closing price
• Double-smoothed EMA = 15-period EMA of the single-smoothed EMA
• Triple-smoothed EMA = 15-period EMA of the double-smoothed EMA
• TRIX = 1-period per cent change of the triple-smoothed EMA

Key Characteristics of TRIX

The above calculation will show a TRIX indicator swinging below and above zero, producing negative or positive values. So besides that the key characteristics that you can deduce are the EMA itself and the lookback period being employed.

How to Use TRIX in Trading

Knowing about the TRIX indicator is one thing but actively practicing on that knowledge is another, which is why we’ll be looking into some of the different ways in which you can use that indicator in your trading endeavors.

TRIX Crossovers

One popular strategy that you’ll often find traders using is crossovers, whether it be using signal lines or whether it be those zero line crosses. 

Think of zero as the centerline basically and if you see the TRIX line going over it from below then that means you might want to start buying because the value may only go up from that point onward, but if you see that TRIX line going below the zero line from above, then you should do the exact opposite.

If that happens just know that there might be a shrinking impulse within the market and that you may have to start selling soon if you haven’t already to reduce your losses.

Trend Following with TRIX

So from what we’ve said so far you can deduce that the TRIX indicator can be used for some good old trend following. 

Knowing when there’s an uptrend or a downtrend is vital if you are to make the most from your investments, and having a tool that can reliably discern all that will go a long way in you doing just that. 

So if you see some consistently rising positive values then that means you have an uptrend and what constitutes a downtrend then should be obvious.

Identifying Overbought and Oversold Conditions

Like any oscillator, you can use the TRIX indicator to determine whether there are overbought conditions within the market or oversold. 

But how can you do that with this indicator in particular? Well, as we said before if you get extreme positive values then you have overbought conditions and if you have extreme negative values then that means the market is going through some oversold conditions now.

TRIX Divergences

TRIX can even be used to look for when substantial turning points are going to happen within the market. This is usually done by examining divergences. Now what does that mean? Divergences happen when prices move in a direction that’s opposite to that of the TRIX indicator. 

So if you see prices making higher highs with the TRIX indicator making lower highs then you may have a weakening uptrend on your hands with a bearish reversal possibly being on the horizon. 

But if the opposite happens with TRIX indicator making higher lows and the price making lower lows then you basically dealing with a bullish reversal here, potentially that is.

TRIX Strategies for Different Trading Styles

But what about those popular trading styles? How does TRIX relate to them? In case you’re wondering about that, then look no further, as we’ll be discussing that in length below.

Day Trading with TRIX

If you’re a day trader then chances are it’s those short term gains that really appeal to you. In that case, you could just apply shorter time frames and make use of scalping as one of your primary trading strategies.

Swing Trading with TRIX

For those swing traders, medium to long time frames may suffice due to the kind of gains they’re looking for. Trying out reversal strategies then should be warranted considering all that time they’ve given themselves to work with.

Long-Term Investing with TRIX

If long term trading is something you find more appealing, then the time frames on the TRIX indicator can be adjusted accordingly to fit your needs. Like swing traders you should find reversal strategies promising and also those that make use of divergences.

Advantages and Limitations of TRIX

Like any indicator out there you will find that TRIX comes with its own set of limitations and benefits. Knowing both of these will be instrumental in circumventing any potential challenges or issues that may come your way whenever you’re using it.

Benefits of Using TRIX

You can filter out some of that market noise with it and it can help identify those trend reversals early which is why it’s even that popular with technical analysts.

Limitations of TRIX

It’s not entirely free of false signals, it’s a lagging indicator at the end of the day and that means you may notice trends later than they potentially happen, and finally it’s not completely free from market noise as volatile markets may make that aspect of it less dependable.

Conclusion

The TRIX indicator is one tool that you want to make the most out of given its popularity and that’s only possible if you have enough experience with it. Experience after all will grant you insights into its strengths and weaknesses or whether it even aligns with what you’re looking for.