TRIX Indicator

The TRIX indicator provides traders with valuable insights on trends, momentum, and reversals, allowing them to enhance their trading strategies by analyzing the direction, crossovers, and rate of change of the TRIX line for market entries, exits, and trend confirmation

10 minutes


Introduction

The TRIX indicator, also known as the “Triple Exponential Average,” is a tool that lots of traders use to find trends and make trading decisions. It was made by Jack Hutson in the 1980s and comes from the exponential moving average (EMA), which is a weighted moving average that focuses on recent data points. The TRIX indicator takes the EMA of a price series and smooths it three times, making a special oscillator.

It’s important to know that the TRIX indicator is helpful, but it’s just one of many tools in technical analysis. Traders often use it along with other indicators and analysis methods to get a complete understanding and make smart trading choices.


Computing the TRIX Indicator

The TRIX indicator is a calculation based on exponential moving averages (EMAs) that helps analyze market trends. To compute the TRIX indicator, follow these steps:

1. Begin with the first-stage exponential moving average (EMA1) by calculating:

EMA1 = EMA(close, N)

  • EMA1: First-stage EMA
  • close: Closing price of the asset
  • N: Number of periods used for EMA calculation (often 14)

2. Next, calculate the second-stage exponential moving average (EMA2):

EMA2 = EMA(EMA1, N)

  • EMA2: Second-stage EMA
  • EMA1: First-stage EMA
  • N: Number of periods used for EMA calculation (often 14)

3. Proceed to the third-stage exponential moving average (EMA3), also known as the TRIX:

EMA3 = EMA(EMA2, N)

  • EMA3: Third-stage EMA (TRIX)
  • EMA2: Second-stage EMA
  • N: Number of periods used for EMA calculation (often 14)

4. Calculate the TRIX line by determining the percentage change from the previous period:

TRIX = (EMA3 - EMA3[1]) / EMA3[1] * 100

  • TRIX: TRIX line value
  • EMA3: Third-stage EMA (current period)
  • EMA3[1]: Third-stage EMA (previous period)

The resulting TRIX value is commonly visualized as a line chart or histogram, depicting the percentage change of the TRIX line compared to its previous period. This representation aids in identifying market trends and potential trading opportunities.


Understanding the TRIX Indicator in technical analysis

The TRIX indicator is important in technical analysis because it gives useful insights into trends, momentum, and possible reversal points in the price series. Let’s take a look at the key things to understand about the TRIX indicator:

Identifying trends

You can use the TRIX indicator to figure out which way trends are going and how strong they are. When the TRIX line goes up, it means there’s an upward trend and positive momentum. On the other hand, if the TRIX line goes down, it suggests a potential downward trend and negative momentum. By using the TRIX indicator, you can confirm trends and adjust your strategies accordingly.

Analyzing momentum

Watching how fast the TRIX line changes helps you determine the strength of price momentum. If the TRIX line goes up or down quickly, it indicates strong momentum in that direction. But if the TRIX line moves slowly or stays flat, it means the momentum is weak. By analyzing the momentum of the TRIX line, you can assess the strength of the trend and make well-informed trading choices.

Crossovers of signal line

Traders often combine the TRIX indicator with a signal line, usually a 9-period EMA of the TRIX, to generate trading signals. When the TRIX line crosses above the signal line, it’s a bullish signal suggesting a potential upward trend. Conversely, when the TRIX line crosses below the signal line, it’s a bearish signal indicating a possible downward trend. These crossovers help traders find the best entry and exit points.

Divergence

Divergence between the TRIX indicator and price can give you hints about potential trend reversals. Bullish divergence happens when the price keeps going lower while the TRIX indicator forms higher lows. This indicates a weakening downward momentum and a possible trend reversal to the upside. On the other hand, bearish divergence occurs when the price keeps making higher highs while the TRIX indicator forms lower highs, suggesting a potential trend reversal to the downside. Divergence signals help traders predict reversals and adjust their strategies accordingly.

To sum up, the TRIX indicator shows price trends, momentum, and possible reversals in a visual way. By combining the TRIX indicator with other technical analysis tools and indicators, you can gain a comprehensive understanding of how the market is moving, which empowers you to make informed trading decisions.



How to use the TRIX Indicator in trading?

TRIX plotted along with MA(21) and SuperTrend indicator and shows two ways of using TRIX

To get the most out of the TRIX indicator in a practical and effective way, here are some tips for you to follow:

Confirm trends

Make sure to confirm trends by combining the TRIX indicator with other indicators or price patterns that follow trends. Look for a clear and consistent direction of the TRIX line, which shows a strong trend. When the TRIX trend aligns with other signals that confirm it, it helps you make better trading decisions.

Assess momentum

Evaluate momentum by monitoring the rate of change and slope of the TRIX line. A steep incline or decline indicates strong momentum, while a flat or gradual TRIX line suggests weakening momentum. To identify overbought or oversold conditions and potential reversals, combine momentum analysis with oscillators or volume indicators.

Identify divergence

Watch out for divergences between the TRIX indicator and price to anticipate trend reversals. Bullish divergence happens when the TRIX indicator forms higher lows and the price forms lower lows, indicating a possible buying opportunity. Bearish divergence occurs when the TRIX indicator forms lower highs and the price forms higher highs, suggesting a potential downward reversal.

Consider support and resistance

Take note of significant support and resistance levels when using the TRIX indicator. TRIX signals near these levels strengthen their validity. Look for confluence between TRIX signals and other technical analysis tools to increase the reliability of your trades.

Time entries and exits

Use signal line crossovers to time your entry and exit points. When the TRIX line crosses above the signal line, it may indicate a potential bullish trend and a buying opportunity. Conversely, a crossover below the signal line could signal a bearish trend, prompting you to consider selling or shorting positions. For more accuracy, confirm these crossovers with additional signals.

Multiple timeframes

Evaluate the TRIX indicator across different timeframes. Start by determining the overall trend using higher timeframes like daily or weekly, then switch to lower timeframes such as 4-hour or 1-hour for precise entry and exit points. Analyzing multiple timeframes gives you a comprehensive view of the market and reduces false signals.

Combine with volume analysis

Incorporate volume analysis with the TRIX indicator. When you see high trading volumes accompanying TRIX crossovers or divergences, it validates the strength of the signal. Increased volume during a bullish signal or decreased volume during a bearish signal adds conviction to potential trend reversals.

Use with trend confirmation indicators

Enhance the effectiveness of the TRIX indicator by combining it with other trend confirmation indicators. For example, you can pair it with moving averages or trendlines to gain additional confirmation of the trend direction. Aligning these indicators with the TRIX signal strengthens your trading decisions.

Practice patience and discipline

Exercise patience and discipline when using the TRIX indicator. Avoid entering trades solely based on TRIX signals. Instead, wait for confirmations from other indicators or price action. Stick to your trading plan and risk management rules to maintain consistency.

Practice risk management

Implement proper risk management techniques when using the TRIX indicator. Set appropriate stop-loss orders to limit potential losses in case the market moves unfavorably. Consider position sizing and diversification to effectively manage risk.

Also see: Stop Loss . . . and its importance in tradingSome ways of setting up stop loss levels

Backtesting and optimization

Before relying on the TRIX indicator, conduct thorough backtesting on historical data. Adjust the indicator’s parameters and observe its performance under different market conditions. This process helps optimize the indicator and refine your trading strategy.

Remember, the TRIX indicator is just one tool in technical analysis. Combine it with other indicators or chart patterns to form a comprehensive trading approach. Continuously adapt your strategy based on market conditions and performance. Succeeding in trading requires technical analysis, risk management, and psychological discipline. Keep learning, adapt to changing markets, and refine your strategies to improve your trading performance over time.


Advantages & Limitations of the TRIX Indicator

Here are some good things and not-so-good things about using the TRIX indicator in trading. You might find them helpful in making your decisions:

Advantages

  • Spotting Trends: With the TRIX indicator, you can figure out and evaluate trends by looking at the direction and slope of the TRIX line. This helps you go along with the market trend and make smarter choices.
  • Early Signals: The TRIX indicator can give you early signals that a trend might change. When you see the TRIX line crossing up or down, you can predict shifts in the market and take advantage of good trading chances.
  • Smoothed Momentum: The TRIX indicator smooths out price momentum by using a fancy math method called triple exponential smoothing. This means it gets rid of the short-term noise and gives you a clearer view of the underlying momentum, so you can judge how strong the current trend is.

Limitations

  • Delayed Indicator: The TRIX indicator relies on past price data, which means it’s not the quickest indicator out there. It might not give you timely signals when the market is changing rapidly or when there’s a lot of volatility. This could cause you to enter or exit trades later than you’d like.
  • False Signals: Like any other technical indicator, the TRIX indicator can sometimes give you false signals. For example, the TRIX line might cross the signal line or show differences, but the price movement afterwards doesn’t confirm the expected trend reversal. It’s good to use other signals and be cautious when relying only on the TRIX indicator.
  • Parameter Sensitivity: The TRIX indicator’s effectiveness can be affected by its settings, like how many periods it uses for calculations. Different settings can give you different signals, so you need to fine-tune the indicator to match the specific market conditions. But be careful not to over-optimize the parameters, as this can make the indicator less reliable in different market situations.

Remember to think about these advantages  and limitations based on your overall trading strategy. It’s a good idea to combine the TRIX indicator with other tools and analysis techniques for a well-rounded approach to trading.


As a trader, incorporating the TRIX indicator into your trading strategy can bring you valuable insights into market trends. It excels in identifying trends and generating early signals for reversals. Moreover, it provides a smoothed representation of price momentum. By utilizing the TRIX indicator along with other indicators and analysis techniques, you can enhance the accuracy of your trades and overall performance. This powerful tool empowers you to make well-informed decisions when entering or exiting trades, potentially seizing profitable opportunities.


While the TRIX indicator offers advantages such as trend identification and early reversal signal generation, its effectiveness may vary depending on market conditions. It is essential to conduct thorough research, combine the TRIX indicator with other indicators, and consider risk management strategies before making any trading decisions. Trading involves inherent risks, and past performance of the TRIX indicator does not guarantee future results. Always exercise caution and make informed decisions based on your own analysis.

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