TRIX

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Introduction

The TRIX indicator is a momentum oscillator developed in the 1980s by former editor of Technical Analysis of Stocks and Commodities magazine Jack Hutson. Hutson designed the TRIX to filter out market noise by calculating the rate of change of a triple exponentially smoothed moving average. The TRIX calculate the slope of a triple-smoothed exponential moving average. The name TRIX is derived from the indicators use of a triple exponential average. Traders and Investors can use the TRIX indicator to identify buy and sell opportunities by watching for divergences and crossovers on the indicator. Many of the trading signals that used with the TRIX are similar to the signals used by traders using the MACD indicator.

Calculation

The TRIX is calculated first with a given N-day period as follows:

  1. Smooth prices (closing prices) using an N-day exponential moving average (EMA).
  2. Smooth that series using another N-day EMA.
  3. Smooth that series a third time, using another N-day EMA.
  4. Lastly calculate the percentage difference between today's and yesterday's calculation in the final smoothed series.

By using a triple-smoothed EMA, the TRIX calculation value is more spread out than calculation value of the plain EMA. The plain EMA value will be dominated by the most recent data where as the TRIX value will be less impacted the latest data points.

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Interpretation

Due to the similarities between the TRIX to MACD indicator, most experienced traders should not have difficulties using the TRIX oscillator. Like the MACD, the TRIX is momentum oscillators that produce values that will be either above or below a centre zero line. Crossovers of the centreline can provide traders a directional bias that will help traders trade in the direction of the primary trend. The TRIX indicator can give buy and sell signals with indicator crossovers and like most oscillators bullish and bearish divergences can be used to spot potential trend reversals.

The nicest feature of the TRIX is that allows traders quickly identify if the general momentum of a stock is either positive or negative. When the TRIX value is positive (momentum is increasing) the EMA is rising and conversely when the TRIX value is negative (momentum is falling) the EMA is decreasing.

Conclusion

Traders who are familiar with MACD indicator may find the using the TRIX at natural progression in their trading education. The TRIX can be used to keep traders on the right side of the market by using the centre line as tool to provide a directional bias of the market. Crossovers on the TRIX indicator values can be used generate buy and sell signals. Divergences can be used to alert traders of pending market reversals. The triple smoothing technique of the TRIX is designed to eliminate some of the false signals that generated MACD. The TRIX is an interesting tool that every trader should consider using.