Good day everybody,
Welcome to CryptoGod-1's blog on all things crypto. Today we are going to continue the series on Technical Analysis and why it can be such an important asset for new or experienced traders. In this series I am covering some of the different Technical Analysis and Indicators which can be used to help determine market movement and sentiment when trading. For Part XXIII the focus will be on the triple exponential average, also known as the TRIX indicator.
TRIX Indicator
The triple exponential average indicator (TRIX) is a momentum indicator used to show the percentage change in a moving average that has been smoothed exponentially three times. Created by Jack Hutson in the 1980s, TRIX has become a popular technical analysis tool to aid chartists in spotting diversions and directional cues in trading patterns. Many consider it similar to a MACD, the primary difference between is that TRIX outputs are smoother due to the triple smoothing. It is used as an oscillator used to identify oversold and overbought markets and is also used as a momentum indicator.
Calculating the TRIX Indicator
To calculate TRIX a trader need the exponential moving average of a price, which is gotten from the calculation:
EMA1(i)=EMA(Price,N,1)
where: Price(i)= Current priceEMA1(i)= The current value of the Exponential Moving Average
From there the EMA is smoothed, by applying the following:
EMA2(i)=EMA(EMA1,N,i)
Finally, it is smoothed for the third calculation, meaning the TRIX is basicailly an is an EMA of an EMA of an EMA.
EMA3(i)=EMA(EMA2,N,i)
The indicator is formed by applying the above info into the equation below:
TRIX(i)= EMA3(i)−EMA3(i−1) / EMA3(i−1)
The below image from investopedia.com is an explanation of the calculation:
How to use the TRIX Indicator
The TRIX indicator is show as an oscillator along with a zero level, and signal lines. Generally traders look out for three main things when making use of the TRIX indicator as a trading strategy, which are:
Zero Line Crossover
Signal Line Crossovers
Bullish and Bearish Divergences
Zero Line Crossover
While the TRIX indicator is swinging around the zero line, it will often cross over it. This is taken as a signal by trader who will use it to determine the impulse of the market.
When the TRIX indicator crosses above the zero line from below it, then it becomes positive. This is an indication the the trend has become bullish, and traders will look to place a long trade.
When the TRIX indicator crosses below the zero line from above it, then it becomes negative. This is an indication the the trend has become bearish, and traders will look to place a short trade.
Below is an image from commodity.com showing how to use the Zero Line Crossover
Signal Line Crossovers
When using the TRIX indicator a signal line is often applied on the TRIX indicator to assist traders in choosing the best entry points. The signal line is a moving average of the TRIX indicator, and often lags behind the TRIX indicator.
A bullish crossover takes place when the TRIX indicator crosses above the signal line. A bearish crossover takes place when the TRIX indicator crosses below the signal line. These generally indicate a reversal, and are best applied in trending markets.
When the market is in a range, a signal line crossover will be an indicator that the resistance and support areas have been upheld in the market.
Below is an image from sealtrader.com showing how to use the Signal Line Crossover
Bullish and Bearish Divergences
When using the TRIX indicator a trader can also make use of it to help identify when changes can happen in the market. These are known as divergences, and it can be achieved by finding these, as they occur when the assets price is moving in the opposite direction as the indicator.
A bullish divergence happens when the TRIX indicator is making a higher low while the price of the underlying asset is making a lower low. This indicates that a bullish price reversal is about to happen and the downtrend is losing momentum.
A bearish divergence happens when the TRIX indicator is making a lower high and the price of the underlying asset makes a higher high. This indicates that a bearish price reversal is about to happen and the uptrend is losing momentum.
With all indicators, these are never definitive or indicative or when the reversal will happen, but can be an especially good indicator that the trend will change when the assets price and the indicator don't confirm themselves.
Below is an image from feedroll.com showing how to use the Bullish & Bearish Divergences
Limitations of the TRIX Indicator
Similar to any indicator associated with range bound trading, the TRIX indicator can begin intersecting when price action starts to entwine the three EMAs. This can create a compact range which makes the indicator cross under and over the zero line without any real change in the price movement. This can then be interpreted as a false signal if the market is not in an impulse trend move.
Conclusion on using the TRIX Indicator for TA
As a trader, whether it be day trading or long term trading, using TRIX can be very beneficial in determining oversold and overbought assets, along with identifying the momentum in said asset. Similar to other oscillators, the TRIX is based around a ZERO line, with divergences and crossovers the main indicators for traders. The TRIX displays the rate of change via a triple exponentially smoothed moving average of the closing price of an asset, and is often used by traders to filter out price movements that can be considered unimportant or insignificant. When used in a higher timeframe, the TRIX is considered more accurate with its signals (by providing fewer), while in the shorter timeframes it can be more prone to giving false signals. It can be more accurate when paired with other instruments of TA, therefore TRIX should not be used as a standalone indicator.
As stated whether you are experienced or new, Technical Analysis can always be a useful asset when trading. Just remember it is not guaranteed and nobody can predict the future, no matter how certain you believe the patterns to be. It is always just another tool of the trade to help make more informed decisions when trading. It can be easy to get caught into false signals with a large number volatile changes in the oscillator with a TRIX indicator in a shorter timeframe, and it can also show an upcoming trend reversal which never takes place as part of a false signal.
It is important to use the TRIX indicator along with other TA to get the correct signals for understanding the strength of a trend. While TRIX is best used a longer timeframe, a trader should always zoom in and out. Therefore if trading on a 1 hour chart also ensure to check the 4 hour or 30 minute charts to give you a better idea of the overall situation via the TRIX indicator.
You can find the previous parts to the series here:
Technical Analysis - Part I - Exponential Moving Average (EMA)
Technical Analysis - Part II - Relative Strength Index (RSI)
Technical Analysis - Part III - Bollinger Bands (BB)
Technical Analysis - Part IV - Moving Average Convergence Divergence (MACD)
Technical Analysis - Part V - On-Balance Volume (OBV)
Technical Analysis - Part VI - The Average Directional Index (ADX)
Technical Analysis - Part VII - The Aroon Indicator
Technical Analysis - Part VIII - The Accumulation/Distribution Indicator (A/D)
Technical Analysis - Part IX - The Supertrend Indicator
Technical Analysis Part X - Parabolic SAR Indicator
Technical Analysis Part XI - Support & Resistance Levels
Technical Analysis Part XII - Fibonacci Retracement Levels
Technical Analysis Part XIII - The Awesome Oscillator
Technical Analysis Part XIV - The Arnaud Legoux Moving Average
Technical Analysis Part XV - Ichimoku Cloud
Technical Analysis - Part XVI - Footprint Charts
Technical Analysis - Part XVII - Heikin Ashi Candlesticks
Technical Analysis - Part XVIII - True Strength Indicator
Technical Analysis - Part XIX - The Klinger Oscillator
Technical Analysis - Part XX - Connors RSI
Technical Analysis - Part XXI - Coppock Curves
Technical Analysis - Part XXII - Weighted Moving Average
Also feel free to check out:
I hope this post was beneficial and of some use, and I plan on continuing the series with the next instalment focusing on the McGinley Dynamic Indicator. Of course each technical analysis provides different beneficial information, so combining your most trusted and favourite ones can be the best strategy for finding entry and exit points when trading.
Have a great day.
Peace. CryptoGod-1.
Referral links:
Publish0x - https://www.publish0x.com/?a=olejZqrzej
Splinterlands - https://splinterlands.com?ref=rnabc1
Upland - r.upland.me/NQAH
Binance - https://accounts.binance.com/en/register?ref=143611368
NFT Market Sales
Opensea - https://opensea.io/RNabc
Follow Me :)
Twitter - @RNabc123
