TRIX Indicator

What

TRIX is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security's closing price. Oscillating around a zero line, TRIX is designed to filter out stock movements that are insignificant to the larger trend of the stock. The user selects a number of periods (such as 15) with which to create the moving average, and those cycles that are shorter than that period are filtered out.

The TRIX is a leading indicator and can be used to anticipate turning points in a trend through its divergence with the security price. Likewise, it is common to plot a moving average with a smaller period (such as 9) and use it as a "signal line" to anticipate where the TRIX is heading. TRIX line crossovers with its "signal line" can be used as buy/sell signals as well.

How

To calculate the indicator TRIX, you must first select the period for the formation of an exponential moving average of closing prices. For the 15-day period, the calculation would be as follows:

1. Computes the 15-day exponential sliding average closing price;

2. Computes the 15-day rolling average of the exponential moving average, calculated in item 1;

3. Computes the 15-day rolling average of the exponential moving average, calculated in Clause 2 Now we have a triple exponentially smoothed sliding average closing prices, which considerably reduces the variability.

4. Finally, the calculated 1-day moving average percentage change, calculated in paragraph 3

When

Since TRIX measures the rate-of-change of closing prices, a positive TRIX value is interpreted as a steady rise in the closing price of a security. A positive TRIX is thus akin to a positive trending price, allowing the indicator to act as a buy signal whenever it crosses up above the zero line. Similarly, crossing below the zero line suggests the price is tending to close down at the end of each period, which can be a sell signal.

The "signal line" mentioned earlier is also a useful buy/sell indicator. Since the signal line period is shorter, a cross above it suggests that recent stock prices are closing much higher. A buy signal is triggered when TRIX crosses above its signal line, and a sell signal is triggered when TRIX crosses below its signal line. This method can generate false signals during sideways price movements, so it works best when prices are trending. It is therefore wise to use TRIX in tandem with other indicators for confirmation.