Triple Exponential Average (TRIX): Definition, Application, and Calculation
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Summary:
The Triple Exponential Average (TRIX) is a momentum indicator smoothing moving averages three times. Discover its application in identifying oversold and overbought markets, momentum signals, and the calculation process.
Understanding triple exponential average (TRIX)
The Triple Exponential Average (TRIX) is a versatile tool that combines elements of a momentum indicator and an oscillator. Developed by Jack Hutson, it stands out from the Moving Average Convergence Divergence (MACD) with its distinctive feature of triple smoothing the Exponential Moving Average (EMA), resulting in smoother outputs.
Oversold and overbought markets
Within the realm of TRIX, markets are assessed through oscillations around a zero line. TRIX is particularly adept at identifying oversold and overbought markets. Extreme positive values act as a warning sign of an overbought market, suggesting a potential reversal, while extreme negative values indicate an oversold market, hinting at a potential upward shift.
Momentum indicator
TRIX’s role as a momentum indicator is crucial for traders seeking insights into the market’s directional strength. Positive TRIX values signify an increase in momentum, suggesting a potential bullish trend. Conversely, negative TRIX values indicate a decrease in momentum, signaling a potential bearish trend. Crossing above the zero line often triggers a buy signal, while dipping below the zero line may trigger a sell signal, enhancing its utility for traders.
Divergence and turning points
Beyond its role in identifying market conditions, TRIX excels in detecting divergence between price movements and its own oscillations. This divergence can be a key indicator of significant turning points in the market. Traders keen on spotting trend reversals or shifts in market sentiment find TRIX’s ability to uncover divergence valuable in making informed decisions.
Calculating TRIX
The calculation of TRIX involves triple smoothing of the exponential moving average (EMA). Starting with the EMA of the price, it undergoes double and triple smoothing to derive the TRIX indicator.
Now, the indicator itself is found with the following mathematical formula:
\[ TRIX(i) = \frac{{EMA3(i-1)}}{{EMA3(i)-EMA3(i-1)}} \]
Where:
- EMA3(i): Current value of the triple smoothed Exponential Moving Average.
- EMA3(i-1): Previous value of the triple smoothed Exponential Moving Average.
This mathematical expression provides traders with a precise method for calculating the TRIX indicator and gaining insights into market dynamics.
The bottom line
In conclusion, the Triple Exponential Average (TRIX) stands as a robust tool for technical traders, offering a nuanced understanding of market conditions. With its dual role as a momentum indicator and oscillator, TRIX assists in identifying oversold and overbought markets, recognizing momentum shifts, and signaling potential turning points.
The triple smoothing of the Exponential Moving Average (EMA) sets TRIX apart, providing traders with smoother outputs compared to similar indicators. By incorporating the calculated TRIX values and understanding its oscillations, traders can enhance their decision-making process and navigate the dynamic landscape of the financial markets.
Whether utilized independently or in conjunction with other technical indicators, TRIX remains a valuable asset in the trader’s toolkit, offering insights that contribute to more informed and strategic trading decisions.
Frequently asked questions
How does TRIX differ from MACD?
TRIX differs from MACD in its smoother outputs due to triple smoothing of the EMA, providing clearer signals.
What does an extreme positive TRIX value indicate?
An extreme positive value in TRIX signals an overbought market condition.
When is TRIX used as a momentum indicator?
TRIX is used as a momentum indicator to gauge increasing or decreasing momentum in the market.
How is TRIX calculated?
TRIX is calculated through triple smoothing of the exponential moving average, involving a series of exponential smoothing steps.
Can TRIX be used in conjunction with other indicators?
Yes, TRIX can be combined with other technical indicators for a more comprehensive analysis of market conditions.
Key takeaways
- TRIX is a triple exponential average, serving as both a momentum indicator and oscillator.
- Identifies oversold and overbought markets, providing valuable signals for traders.
- Calculation involves triple smoothing of the exponential moving average (EMA).
- Extreme TRIX values indicate market conditions, aiding in decision-making.
- TRIX can be a powerful tool when used in conjunction with other technical indicators.
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