Triple Exponential Average (TRIX) smooths price data to highlight momentum shifts, helping commodity traders spot trend changes and filter out market noise.
What Is the Triple Exponential Average (TRIX)?
The Triple Exponential Average (TRIX) is an indicator that attempts to screen out short-term volatility.
For this reason, the TRIX might be used to identify divergences and overbought and oversold conditions, as well as attempting to give potential buy and sell signals.
What Does the TRIX Look Like?
A 9-day TRIX is shown below in Chart 1 below of the E-mini S&P 500 Futures contract:
How to Interpret the TRIX
There are two types of signals that can be illuminated by the TRIX: potential buy signals and potential sell signals.
It can also be used to confirm price action or identify divergences.
TRIX Potential Buy or Sell Signals
- A trader might consider buying when the TRIX crosses above the zero line.
- A trader might consider selling when the TRIX crosses below the zero line.
The potential buy and sell signals are typically for entries.
Using Chart 1 above potential buy and sell signals for exits might prove profitless.
A trader, therefore, might consider exiting a long entry when the TRIX enters the oversold area and begins to turn downwards toward the zero line.
Likewise, a trader might exit a short when the TRIX enters the oversold area and begins to turn upward and move toward the zero line.
TRIX Confirmation or Divergence
The Triple Exponential Average (TRIX) might be used in an attempt to identify divergences as well as confirm price action.
- Confirmation: TRIX is rising and the price of the stock, currency, or future is rising. Likewise, when the TRIX is falling and the market price is falling.
- Divergence: TRIX is rising or neutral and the market price is falling; or TRIX is falling or neutral and the market price is rising.
Examples of Confirmation and Divergence
Possible confirmations and divergences are shown below in Chart 2 of the E-mini S&P 500 Futures contract:
Example: Low #1 to Low #2
The E-mini S&P 500 Futures contract made a higher low and was likewise confirmed by the TRIX indicator making a higher low as well.
Example: High #1 to High #2
The e-mini future managed to make higher highs, but the Triple Exponential Average made a quite noticeable lower high and low. This bearish divergence warned that prices might change course and that traders might do well to reduce their long positions.
The TRIX making lower highs combined with the e-mini’s double top formation and subsequent neckline break might also be an indication that the recent price rise was likely over.
Example: Low #3 to Low #4
During the S&P 500 e-mini’s downtrend on Chart 2 above, the price managed to make a significant lower low.
In contrast, the Triple Exponential Average made equal lows, generally a sign that a potential price bottom was forming. Therefore, traders might see this TRIX divergence and might begin to buy to cover their short positions.
Regulated Brokers: Where Can I Trade Commodities?
Further Reading on Momentum Indicators
These momentum tools complement Triple Exponential Average (TRIX): ADX Indicator, Directional Movement Index (DMI), and Relative Strength Index (RSI).
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