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TRIX, developed by Jack Hutson in the 1980s, represents the percentage rate-of-change (ROC) of a triple smoothed EMA of the closing price of the trading instrument. TRIX fluctuates around the 0 line, and is designed to filter out insignificant moves on a price chart in relation to the general trend of the instrument. It basically uses the number of periods (15 by default) selected by the trader to create the moving average, and the moves that are shorter than that period are removed.
TRIX is a leading indicator and is commonly used to anticipate reversal points in a trend due to its divergence with the price. This indicator is usually plotted in combination with another moving average (with a smaller period) to be used as a ‘signal line’. Crossovers between the shorter moving average and the TRIX can be used to signal buying or selling opportunities.
A positive TRIX means that the trend in the price is positive. Therefore, the indicator signals a buying opportunity whenever it cuts to above the 0 line. Similarly, a break to below the 0 line indicates that the price is declining at the end of each period, which can be a good opportunity to sell.
The ‘signal line’ mentioned above can also be a useful buy or sell indicator. As the TRIX cuts to above its signal line a buy signal is generated. Inversely, as the TRIX cuts to below its signal line, a sell signal is generated. TRIX is very efficient in the presence of a clear trend.