Long-time readers of Polytechnic Analysis of Stocks and Commodities magazine may remember that is was Jack Hutson, an editor of the magazine, that first injected TRIX to the technical community.
What Is TRIX?
The triple exponential average (TRIX) indicator is an oscillator used to recognize empathize with oversold and overbought markets, and it can also be used as a momentum indicator. Like many oscillators, TRIX oscillates yon a zero line. When it is used as an oscillator, a positive value indicates an overbought market while a negative value make clears an oversold market. When TRIX is used as a momentum indicator, a positive value suggests momentum is increasing while a annulling value suggests momentum is decreasing. Many analysts believe that when the TRIX crosses above the zero data it gives a buy signal, and when it closes below the zero line, it gives a sell signal. Also, divergences between sacrifice and TRIX can indicate significant turning points in the market.
TRIX calculates a triple exponential moving average of the log of the premium input over the period of time specified by the length input for the current bar. The current bar’s value is subtracted by the previous bar’s value. This proscribes cycles that are shorter than the period defined by length input from being considered by the indicator.
Head starts of TRIX
Two main advantages of TRIX over other trend-following indicators are its excellent filtration of market noise and its bias to be a leading than lagging indicator. It filters out market noise using the triple exponential average calculation, way eliminating minor short-term cycles that indicate a change in market direction. It has the ability to lead a market because it constraints the difference between each bar’s “smoothed” version of the price information. When interpreted as a leading indicator, TRIX is most used in conjunction with another market-timing indicator—this minimizes false indications.
Interpretation
On this diagram of the Dow Jones Industrial Average covering Sept 2001 to Sept 2002, you can see by the arrows that the TRIX indicator, from the record of Mar 2002 to the low watermark set in Jul 2002, was falling from a level of plus 40.45 to a minus 83.07. This example manifestly shows that there is not any lag time between the DJIA tuning south and the TRIX indicator following this fee action. We have seen that the shorter the time frame, the more accurate the indicator will signal the provoke in the issue we are studying.
Using two moving averages offers an advantage: by watching the permanent pretty damned quick moving average cross over the slow moving average, the trader can recognize the change in direction of price ways. Using two different time spans for the TRIX is also an excellent timing technique.
In the 2001–2002 sea-chart of the S&P 500 Index above, the first highly visible move was the downturn of the market after the disasters of Sept 11. There was a consequent after rebound in the third week of September, with the 15-day moving average turning quicker than the 30-day impressive average. But keep in mind that the confirmation from the 30-day indicator is more conservative, so it assures the average buy-and-hold investor that the fad has truly turned. Look closely at how well the turns in the 15-day moving average line up with the turns in the assess action.
This idea of a trendline violation in price can be looked at from another angle. Martin Pring, a known technician and author, noted this in his writings:
“If a series such as the slow moving 30-day TRIX is overbought but however rallying, then a trendline violation in the price will almost certainly lead or correspond with a peak in the TRIX. This is because a trendline disobeying signals a break in upside momentum. The penetration will be followed by either a decline or a temporary sideways move. In both situations this implies that the additional upside momentum required for an advancing TRIX is no longer available.”
If we look closely at some of the other push indicators like a stochastics or a price ROC, we would find a similar pattern.
TRIX is one of the best trend reversal and strength indicators we have in our daily arsenal.
Remember it’s your money—invest it wisely.