TRIX

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The TRIX was developed in the early 1980's by Jack Hutson, an editor for Technical Analysis of Stocks and Commodities magazine. In technical analysis, it is considered to be a momentum indicator. TRIX displays the percentage rate-of-change of a triple exponentially-smoothed moving average of a security's closing price in order to eliminate price movements that are insignificant in comparison to the larger trends.

The TRIX calculations are based on exponential moving averages and can be completed in four steps. For example, to calculate TRIX(10) - bar period = 10:

1. Calculate the 10-bar exponential moving average of the closing price.
2.  Calculate the 10-bar exponential moving average of the moving average calculated in step #1.
3.  Calculate the 10-bar exponential moving average of the moving average calculated in step #2.
4.  Calculate the 1-day percent change of the moving average calculated in step #3.

In some sources, technicians refer to the TRIX as the Triple Exponential Average Indicator. The TRIX is an oscillator that oscillates about a zero line and is used in technical analysis to identify oversold and overbought markets. A positive TRIX value indicates an overbought condition, whereas a negative value indicates an oversold market. The TRIX also can be used as a momentum indicator. A positive value would suggest that momentum is increasing while a negative value would suggest that momentum is decreasing.

Many traders and technical analysts use TRIX in trading systems to generate signals. Technical analysis says that "Buy" signals are generated when the TRIX crosses the zero line after having been below it and "Sell" signals are generated when the TRIX crosses the zero line on its way down.

At the same time, a divergence of price and TRIX can indicate the possibility of a turning point in the market. It is common practice to plot a moving average ("signal line") with a smaller period to spot changes in the TRIX direction. In this case, TRIX and "Signal Line" crossovers can be used as buy/sell signals.

The main advantage of TRIX over Moving Averages, MACD and other trend-following indicators is its excellent filtration of market noise. By using the triple exponential average calculation, the TRIX line eliminates minor short-term trends and indicates a change in market direction. Many traders look at TRIX as one of the best trend reversal and momentum indicators. When TRIX used in trading systems as a leading indicator, we recommend that it be used in conjunction with another market-timing indicator to minimize false indications and increase the reliability of the system. Since the TRIX indicator is based solely on price, volume or advance decline based technical indicators can be considered to be the best choices to complete the TRIX analysis.

Below is an example of use of a S&P 500 60-day (1 bar = 1 hour) chart of the TRIX indicator in a hypothetical trading system that generates "Buy/Sell Signals" on crossovers of TRIX and the zero line around which TRIX oscillates. 

Chart 1: S&P 500 index - TRIX.

Another way of using TRIX is with a "Signal Line". On the chart below (see chart #2), there is an example of a TRIX trading system that generates signals on TRIX and "Signal Line" crossovers.

Chart 2: S&P 500 index - TRIX 2 line (Signal Line).

If you compare chart #1 to chart #2, you will notice that. with the same setting, the second trading system is more sensitive and may spot trend reversals earlier. However, the trading system system will generate more signals and, as a result, the probability of fake signals is higher. Furthermore, depending on trading styles, one trader may prefer to use TRIX, while another may choose TRIX with "Signal Line".

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