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The TRIX indicator (Triple Exponential Average) is a technical analysis momentum and oscillator tool developed in the early 1980s by Jack Hutson. It measures the percentage rate of change of a triple-smoothed exponential moving average (EMA).
This article discusses the TRIX indicator in detail. Understand the formula and how to calculate.
Key Takeaways
- TRIX is the acronym for Triple Exponential Average.
- It is a trend-following momentum indicator. It applies three levels of exponential smoothing to remove market noise.
- TRIX swings over and below a zero line. A move over zero can suggest positive momentum, whereas a move below zero can indicate negative momentum.
- Crossovers in the signal line can help identify potential changes in momentum.
- Fast price changes can cause TRIX to lag, and it can provide false indications in sideways markets.
Understanding TRIX Indicator
The TRIX indicator is a momentum oscillator that shows the rate of change, in percentage terms, of a triple-smoothed exponential moving average. The idea was to filter out the tiny price moves and allow traders to focus on larger momentum and trend shifts.
TRIX is the rate of change of a triple exponentially smoothed moving average. It is different from a normal moving average because it is triple-smoothed.
This will make the indicator smoother, but the added smoothing can also slow its response to unexpected price changes.
| Feature | TRIX Indicator |
| Full form | Triple Exponential Average |
| Type | Momentum oscillator |
| Calculation | Rate of change of a triple-smoothed EMA |
| Main purpose | Identify momentum and trend changes. |
| Center line | Zero line |
| Common signals | Zero-line and signal-line crossovers |
| Key strength | Filters short-term market noise |
How Does the TRIX Indicator Operate?
TRIX is based on triple exponential moving averages, which smooth price data three times.
The calculation is something like this:
- Calculate an EMA of the close price.
- Apply an EMA to the first EMA.
- Apply a third EMA to the second EMA.
- Calculate the percentage change in this triple-smoothed EMA.
The formula reads:
TRIX = [(Current Triple EMA − Previous Triple EMA) / Previous Triple EMA] × 100
The line thus obtained wiggles about zero. The triple smoothing of the underlying price data is intended to diminish the effect of minor and less important price changes on the TRIX.
How to Read the TRIX Indicator
- TRIX is above the zero line: When TRIX is above zero, it usually means positive momentum. This may indicate an upward tilt in the underlying trend.
- TRIX under the zero line: If TRIX is below zero, it usually means negative momentum and may imply a downtrend.
- Zero-line crossings: A rise from below zero to above zero can be a sign of increased momentum. A move from above zero to below zero might also indicate waning momentum and a potential change to a bearish trend.
- Signal line crossovers: TRIX is normally combined with a signal line, which is generally a moving average of the TRIX line.
- Bullish crossover: TRIX moves over its signal line.
- Bearish crossover: TRIX crosses below its signal line.
These crosses can provide possible trading signals but are more beneficial when combined with price movement and the overall market trend.
Let's understand with an example. Suppose a stock has been trading sideways for a few sessions and starts to build momentum.
The TRIX line starts below zero. The triple-smoothed average starts to increase as the price trend begins to strengthen, and TRIX finally crosses above the zero line.
If, for example, the TRIX indicator crosses above its signal line, it could indicate rising bullish momentum.
The signal is not a guarantee that the price will go up. Traders may search for confirmation from price structure, volume, or a break above resistance.
How to Trade Using the TRIX Indicator
There are various ways to use TRIX.
- Signal line crossover strategy: You could look for the TRIX line to cross the signal line. A cross above the signal line may be an indication that upward momentum is gaining strength, while a cross below the signal line may be a sign that downward momentum is gaining strength.
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Zero-line strategy: The zero line can help determine the general direction of momentum.
- Positive momentum: Above 0
- Negative momentum: Below 0
Some traders wait for a zero-line crossover before they contemplate changing trend direction.
- TRIX with support and resistance: TRIX signals are more meaningful when they are at important price levels. For example, a bullish TRIX crossover near a support area can offer extra context. A negative crossover at resistance could help to bolster a bearish trading view.
- TRIX with volume: Volume can help traders gauge the strength behind a price change. If the TRIX is bullish and volume is increasing, this might indicate greater market engagement. Low volume, however, may make a signal less compelling.
TRIX Divergence
Divergence is when the price and the indicator move in opposite directions.
- Bullish divergence can form when price makes lower lows while TRIX makes higher lows. This could be viewed as a sign of diminishing negative momentum.
- Bearish divergence occurs when price hits higher highs, and TRIX makes lower highs. That can be a sign the upside momentum is fading.
Divergence does not ensure reversal. In a divergence, the price can continue to trend; hence, it is often useful to get more confirmation.
TRIX Settings
| Setting | Effect |
| Shorter period | More responsive, but may generate more signals |
| Standard period | Balanced smoothing and responsiveness |
| Longer period | Smoother signals, but slower reaction |
A shorter setting might be more ideal for traders seeking faster momentum shifts, while a longer setting might be more suitable for broader trend analysis. There is no single option that works well for all markets or timeframes.
TRIX vs MACD
Both TRIX and MACD are tools for analysing momentum and trend changes, although they compute price movement differently.
| Feature | TRIX | MACD |
| Main calculation | Triple-smoothed EMA rate of change | Difference between two EMAs |
| Smoothing | Higher | Lower |
| Sensitivity | Generally slower | Generally more responsive |
| Center line | Zero | Zero |
| Common signal | Signal-line crossover | Signal-line crossover |
| Main use | Filtering market noise | Tracking momentum changes |
TRIX can have a more sensitive perspective of momentum, whereas MACD can be more responsive to price action. Neither indicator has an automatic advantage; it depends on the market and the trading style.
Benefits of the TRIX Indicator
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Filters out market noise: Triple smoothing might minimise smaller price changes.
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Momentum detected: It’s helpful to watch for momentum building or faltering.
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Trend analysis: Zero-line movements may offer a general sense of direction.
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Different signs of trade: Traders can opt for crossings, zero-line crossings, and divergence.
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Works in every market: TRIX applies to equities, indexes, currencies, and commodities.
Limitations and Risks
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Lagging nature: As a moving-average indicator, its triple-smoothing filter can further delay entry and exit signals.
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Vulnerable in sideways markets: It generates less accurate indications in range-bound or choppy conditions characterised by frequent false crossovers.
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Not a standalone tool: It should never be relied upon as a sole trigger for buy or sell decisions.
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Requires confluence and risk management: It must be paired with price action, volume, or support and resistance alongside strict risk controls.
Conclusion
The TRIX indicator is a momentum indicator that measures the rate of change of a triple-smoothed exponentially moving average. Smoothing can eliminate short-term market noise and provide a clearer picture of longer-term trends. Traders can grasp the gist of zero-line crossings, signal-line crossovers, and divergence, but price action confirmation and adequate risk management remain vital.
