What Is Triple Exponential Average (TRIX)?

The triple exponential average (TRIX) is a momentum indicator used by technical traders that shows the percentage change in a moving average that has been smoothed exponentially three times. The triple smoothing of moving averages is designed to filter out price movements that are considered insignificant or unimportant. TRIX is also implemented by technical traders to produce signals that are similar in nature to the moving average convergence divergence (MACD).

Key Takeaways

  • The triple exponential average (TRIX) indicator is an oscillator used to identify oversold and overbought markets and is also a momentum indicator.
  • The triple smoothing of moving averages is designed to filter out price movements that are considered insignificant or unimportant.
  • Many analysts believe that when the TRIX crosses above the zero line, it gives a buy signal, and when it closes below the zero line, it gives a sell signal.

Understanding Triple Exponential Average (TRIX)

Developed by Jack Hutson in the early 1980s, the triple exponential average (TRIX) has become a popular technical analysis tool to aid chartists in spotting diversions and directional cues in stock trading patterns. Although many consider TRIX to be very similar to MACD, the primary difference between the two is that TRIX outputs are smoother due to the triple smoothing of the exponential moving average (EMA).

As a powerful oscillator indicator, TRIX can be used to identify oversold and overbought markets, and it can also be used as a momentum indicator. Like many oscillators, TRIX oscillates around a zero line. When it is used as an oscillator, an extreme positive value indicates an overbought market while an extreme negative value indicates an oversold market.

When TRIX is used as a momentum indicator, a positive value suggests momentum is increasing, while a negative value suggests momentum is decreasing. Many analysts believe that when the TRIX crosses above the zero line, it gives a buy signal, and when it closes below the zero line, it gives a sell signal. Also, any divergence between price and TRIX can indicate significant turning points in the market.

Calculating TRIX

First, the exponential moving average of a price is derived from the expression:

E M A 1 ( i ) = E M A ( Price , N , 1 ) where: Price ( i ) =  Current price E M A 1 ( i ) =  The current value of the Exponential  Moving Average \begin{aligned} &EMA1(i)=EMA(\text{Price}, N, 1)\\ &\textbf{where:}\\ &\text{Price}(i)=\text{ Current price}\\ &\begin{aligned} EMA1(i)=&\text{ The current value of the Exponential}\\ &\text{ Moving Average}\end{aligned} \end{aligned} EMA1(i)=EMA(Price,N,1)where:Price(i)= Current priceEMA1(i)= The current value of the Exponential Moving Average

Next, the second smoothing of the obtained average is executed—double exponential smoothing:

E M A 2 ( i ) = E M A ( E M A 1 , N , i ) EMA2(i)=EMA(EMA1,N,i) EMA2(i)=EMA(EMA1,N,i)

The double exponential moving average is smoothed exponentially one more time—hence, the triple exponential average:

E M A 3 ( i ) = E M A ( E M A 2 , N , i ) EMA3(i)=EMA(EMA2,N,i) EMA3(i)=EMA(EMA2,N,i)

Now the indicator itself is found with:

T R I X ( i ) = E M A 3 ( i ) E M A 3 ( i 1 ) E M A 3 ( i 1 ) TRIX(i)=\frac{EMA3(i)-EMA3(i-1)}{EMA3(i-1)} TRIX(i)=EMA3(i1)EMA3(i)EMA3(i1)