What Is the Triple Exponential Average

The Triple Exponential Average (TRIX) is a momentum indicator used by technical traders that shows the percentage change in a triple exponentially smoothed moving average. When it is applied to triple smoothing of moving averages, it 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).

Understanding the Triple Exponential Average

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, a positive value indicates an overbought market while a 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 \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 price

Followed by 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 Moving 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)