The TRIX indicator is used in technical analysis as a momentum oscillator. It is comprised of the rate of change of a triple exponentially smoothed moving average. The key signals generated by TRIX are divergences and signal line crossovers.
TRIX was introduced in the early 1980's by Jack Hutson who was an editor for Technical Analysis of Stocks and Commodities magazine.
There are four components to the TRIX calculation:
1. Single Smoothed EMA = 18 Period EMA of Closing Price.
2. Double Smoothed EMA = 18 Period EMA of the Single Smoothed EMA.
3. Triple Smoothed EMA = 18 Period EMA of the Double Smoothed EMA.
4. TRIX = 1 Period Percent Change of Triple Smoothed EMA.
There is also typically a signal line which is an EMA of the TRIX line.
TRIX can typically be interpreted that when the value is positive, momentum is up and when the value is negative, momentum is down. Something to keep in mind however, is that as with any indicator comprised of moving averages, there is lag inherently built into the indicator. It may also be noticed that TRIX is very similar to another technical analysis tool, the MACD, however the TRIX has a line that is much smoother.
Divergence occurs when price action or movements is not confirmed by the indicator's readings. This can be a sign that the current, underlying momentum does not support price and a reversal is potentially at hand.
There are two different type of crossovers when analyzing the TRIX. There are Zero Line crossovers as well as signal line crossovers. Zero Line crossovers typically have a lot of lag and are not always reliable. Signal line crossovers on the other hand, can signify an underlying change in momentum.
TRIX is a versatile technical analysis tool that combines trend and momentum into one indicator. Shorter timeframes or more sensitive, and longer time frames reduce sensitivity. Keep in mind though that the longer the period for TRIX, the more lag is apparent in the indicator. This is true of any indicator which employs moving averages.