Indicators: Triple Exponential Average (TRIX)

[Automated-Trading]

Triple Exponential Average (TRIX):

Triple Exponential Moving Average (TEMA) technical indicator was developed by Patrick Mulloy and published in the "Technical Analysis of Stocks & Commodities" magazine.

The principle of its calculation is similar to Double Exponential Moving Average (DEMA). The name "Triple Exponential Moving Average" does not very correctly reflect its algorithm. This is a unique blend of the single, double and triple exponential smoothing average providing the smaller lag than each of them separately.

TEMA can be used instead of traditional moving averages. It can be used for smoothing price data, as well as for smoothing other indicators.

Author: MetaQuotes Software Corp.

[Sergey Golubev]

Triple Exponential Average (TRIX)

The Triple Exponential Average (TRIX) is an indicator used to identify divergences and overbought and oversold conditions, as well as give buy and sell signals. The TRIX is helpful because it tends to filter out short-term noise.

A 9-day TRIX is shown below in the chart of the E-mini S&P 500 Futures contract:

TRIX Buy Signal

Buy when the TRIX crosses above the zero line.

TRIX Sell Signal

Sell when the TRIX crosses below the zero line.

The buy and sell signals are for entries. Using the above buy and sell signals for exits could prove profitless. A trader could consider exiting a long entry when the TRIX enters the oversold area and begins to turn downwards toward the zero line. Likewise, a trader could exit a short when the TRIX enters the oversold area and begins to turn upward and move toward the zero line.

Another valuable use of the Triple Exponential Average is to confirm price action or not confirm price action through divergences.

TRIX Divergences

The Triple Exponential Average (TRIX) is an effective indicator used 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.

Confirmations and divergences are shown below in the chart of the E-mini S&P 500 Futures contract:

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.

High #1 to High #2

The e-mini future managed to make higher highs; however, the Triple Exponential Average made a quite noticeable lower high and low. This bearish divergence warned that prices might change course and that traders would 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 would also be a powerful indication that the recent price rise was likely over.

Low #3 to Low #4

During the S&P 500 e-mini's downtrend, it managed to make a significant lower low. In contrast, the Triple Exponential Average made equal lows, generally a sign that a price bottom was forming. Astute traders would see this TRIX divergence and would begin to buy to cover their short positions.

The Triple Exponential Average (TRIX) screens out short-term volatility and hence, is a valuable tool for medium and longer-term periods for uncovering divergences in price as well as giving easy to understand buy and sell signals.