The TRIX indicator is a less known indicator, though it has powerful trading signals when used right. In this article we will explain the construction of the indicator and the means of trading it.
Introduction
The TRIX Indicator was developed in the early 1980s by Jack Hutson who was an editor for the Technical Analysis of Stocks and Commodities magazine. Its name is comprised of its calculation: Triple Exponential. The TRIX is calculated using triple smoothing of price and therefore it is generally trend-following and a bit lagging in signals.
Calculation
1. Smooth price with 14-period Exponential Moving Average (EMA).
2. Smooth the EMA from step 1 with 14-period Exponential Moving Average (EMA).
3. Smooth the EMA from step 2 with 14-period Exponential Moving Average (EMA).
4. Divide the value (triple smoothed) of today from the one of yesterday. The result is the TRIX.
A signal line (Slowed version of the TRIX) is then calculated, to be used in generating signals.
Trading with the TRIX
The TRIX is traded in several ways, generally like the MACD which is visually similar.
Trading Method #1: Signal Line Cross
This method uses the signal line to generate buy and sell signals. The trading rule is similar to the one used at MACD, Stochastic and more traditional indicators:
Trading Rules:
Buy when TRIX crosses its Signal Line from below.
Sell when TRIX crosses its Signal Line from above.
Trading Method #2: Zero-Line Cross
Since the TRIX revolves around its zero-line, it can be used as a pivot to gauge trend direction. This approach is similar to CCI and RSI trading signals.
Trading Rules:
Buy when TRIX crosses zero-line from below
Sell when TRIX crosses zero-line from above
Trading Method #3: Divergence
This trading method is used when the TRIX's visual behavior differs from the ones of price. Example: When TRIX is making lower highs and price making higher highs. This can be a signal of irregular trend that is weaker and prone to reversal. Opposite also valid: When TRIX is making higher lows and price is making lower lows. This can be a sign of a bullish reversal
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Monday, November 15, 2010
Trading FOREX With The TRIX Indicator
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