The Secret Mindset
TRIX is a momentum indicator that filters out insignificant price movements. It smooths price data and can be used to generate trade signals. TRIX is calculated by taking a moving average of a moving average of a moving average. When TRIX is below 0, the trend is considered down, and when it’s above 0, the trend is considered up. Divergences between price action and the indicator can indicate a momentum shift. TRIX is a leading indicator that filters out market noise but can offer false signals and has no regard for setting a stop loss.
Understanding the Triple Exponential Average (TRIX) Indicator for Trading
Introduction: What is the TRIX?
The Triple Exponential Average, or TRIX, is a technical indicator used in trading that shows the percentage change in a triple exponentially smoothed moving average. It is designed to filter out price movements that are considered insignificant or unimportant, making it a reliable tool for traders to generate signals that are similar in nature to the Moving Average Convergence Divergence (MACD).
How TRIX Works
TRIX is known for its smooth outputs as it filters out much of the price noise present on the price chart. The indicator looks at the daily (or whatever time frame is being used) percentage movement of a smoothed price data to determine price trends. TRIX rises on sustained moves higher in price and falls on sustained moves lower, making it a reliable indicator of the price trend.
Calculating the TRIX
The TRIX is calculated in a four-step process, which involves taking a moving average of a moving average of a moving average or “triple smoothing”. The steps are as follows:
1. 15-period exponential moving average (EMA) using closing prices.
2. 15-period EMA of result from step 1.
3. 15-period EMA of result from step 2.
4. 1-period percent change of step 3.
TRIX also provides flexibility in terms of the number of periods that can be used in its calculation. Changing the number of periods can offer varying levels of indicator sensitivity, which traders can use to their advantage based on their trading style.
Reading the TRIX
The key to reading the TRIX is to use the zero level or 0.0, as a baseline. When the TRIX is above the zero level and moving higher, the trend is considered up. When the TRIX is below the zero level and moving lower, the trend is considered down.
TRIX can confirm trends and indicate when a trend reversal is underway. It can also generate trade signals, which can be derived from its crossovers with other technical indicators or price patterns.
Using TRIX for Divergence Signals
Divergence signals are another way to use the TRIX indicator, especially when the price action and the indicator are not aligned. Bullish divergence occurs when the price makes a lower low and the TRIX does not, indicating weakened selling momentum that could lead to a trend reversal. Bearish divergence occurs when the price makes a higher high, but the TRIX does not, indicating weakening buying momentum that could result in a trend reversal.
Advantages of TRIX
TRIX has two main advantages over other trend-following indicators. First, it filters out market noise using the triple exponential average calculation, which eliminates minor short-term cycles that indicate a change in market direction. Second, it has the ability to lead a market as it measures the difference between each bar’s “smoothed” version of the price information.
Limitations of TRIX
One limitation of the TRIX is that it doesn’t always reflect what is happening in the price. A trend can persist for a very long time even on weakening momentum, which can be deceiving when using the TRIX alone.
False signals are another common issue with TRIX. A false crossover occurs when the TRIX crosses above or below the zero line, only to snap back and result in a losing trade. To avoid false signals, it is best to use longer-term trend analysis in conjunction with the TRIX indicator.
How to Trade Using TRIX
A popular TRIX strategy is to watch for price reversal signals, such as a trendline or support or resistance breakout, which is confirmed by a TRIX zero line crossover. For long trades, buy when the TRIX crosses above 0.0 if there is some evidence that the price has started to reverse higher. For short trades, go short when the TRIX crosses below 0.0 if there is some evidence that the price has started to reverse lower. However, it is important to use stop-loss orders to control risk and avoid giving back profits.
Conclusion: Use TRIX in Conjunction With Other Indicators
In conclusion, TRIX is a useful indicator that can provide reliable signals of price trends and confirm the onset of trend reversals. However, it is important to use TRIX in conjunction with other technical indicators and price patterns to avoid false signals and effectively manage risk in trading.
