In this article, I will discuss the TRIX indicator and the many trading signals the indicator provides.
What is the TRIX indicator?
The TRIX is a momentum oscillator.  This means that the indicator has no up or down limits.
The TRIX indicator consists of three main components:
- Zero line
- TRIX line
- Percentage scale
How is TRIX calculated?
Triple smooth exponential moving average
The curve line of the indicator shows the percentage change of a triple smoothed exponential moving average. This is just a fantastic way of saying that each average is an average of the previous average. Then smooth them out to create a line: the TRIX.
EMA 1 = closing price of 15 EMA periods
EMA 2 = EMA of 15 periods of simple EMA
EMA 3 = EMA of 15 periods of double smoothed EMA
TRIX = percentage change of a period in smoothed triple EMA
Where does the name come from?
One, two, TRIX! Well, a little.
It is a play on words (Tri of the triple and X of the exponential moving average). It’s not a tribute to TRIX cereals for all my 80’s kids.
What signals does the TRIX indicator provide?
Zero Cross Line
A cross from the zero line up generates a buy signal. In contrast, a cross below the zero line generates a sell signal.  Now, that doesn’t mean you have to go out and start buying and selling all the signals. This is a safe way to deplete your account and enrich your broker.
Example of zero cross line buy signal chart
As I mentioned earlier in the article, it is not a good idea to buy all the crosses in the line.
In the example in the chart above, the stock DK crossed the zero line several times before the bottom was placed. This is where you want to wait until the indicator has a significant background in relation to recent indicator changes.
Then enter a purchase order after breaking the zero line. Now, here’s the tricky part, instead of selling the zero line break, place your stop below the recent low before crossing the zero line.
That way, you trust the price action to get out of the position and not just the indicator. It’s a slight twist on how other sites suggest stopping a long TRIX trade, but this approach will help reduce some of the noise.
Example of a zero line cross-sell signal chart
The example graph above shows the power of confluence between price and an indicator like TRIX.
The indicator tests the zero line again.
Note how the reversal test occurs as the price action performs a 7-day price channel test.
After this backtest, notice how the price accelerates downward and eventually decreases downward.
You can see how trading with the indicator goes far beyond buying and selling zero line crosses.
Signs of divergence
This is always one of the favorites for any indicator. This occurs when the stock and the price indicator are not aligned, which is a precursor to a change in momentum.
You see the indicator test the lows again, but the indicator of the second test is above the zero line. Ultimately, this leads to a higher mass rise, where the indicator makes the new intraday highs of each new impulse higher.
The second maximum had a lower reading on the indicator, which is a precursor to a likely setback.
Where the TRIX fails
The TRIX indicator will have the same problems as any other oscillator: range-limited operation.
Once the price action begins to roll the three EMAs that make up the indicator, it begins to overlap. This creates a narrow range in the indicator that will generate crosses above and below the zero line without a significant price movement.
This is where momentum indicators have problems. Therefore, if a stock market or a market is not in an impulsive trend, the indicator starts pumping false signals.
TRIX versus Price Oscillator
In addition to making observations of the TRIX indicator, it is always good to measure one oscillator against another. So I wanted to take a while to compare the TRIX indicator with the price oscillator. The price oscillator consists of lines 12 and 26 EMA, so that, like the TRIX, the price oscillator is based on the EMA.
As you can see in the chart above, the signals are very similar.
However, the price oscillator is slightly higher than the TRIX. Therefore, if you want to win prices, the OP will provide you with the chance to jump in the market above the TRIX.
To sum up
In short, the TRIX indicator is not the holy grail of the oscillators. The indicator has its flaws, but it is also able to provide extremes in price action. In addition, you can measure momentum movements in relation to historical price activity.
How can Tradingsim help?
If you are interested in the indicator, you can use Tradingsim to trade the indicator to determine if it is able to give you an advantage.
- Achelis, Steven. (1995). Technical analysis from A to Z. Mc-Graw Hill. p. 207
- TRIX. Wikipedia
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