The triple exponential average (TRIX) indicator is an oscillator. TRIX is usually used to identify oversold and overbought markets, and it can also be used as a momentum indicator. TRIX, like other common oscillators, oscillates around a zero line. A positive value indicates an overbought market while a negative value indicates an oversold market when it is used as an oscillator. A positive value suggests momentum is increasing while a negative value suggests momentum is decreasing when TRIX is used as a momentum indicator. 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, divergences between price and TRIX can indicate significant turning points in the market.
TRIX calculates a triple exponential moving average of the log of the price input over the period of time specified by the length input for the current bar. The current bar’s value is subtracted by the previous bar’s value. This prevents cycles that are shorter than the period defined by length input from being considered by the indicator.
The main uses of TRIX are its excellent filtration of market noise and its tendency to be a leading than lagging indicator. It filters out market noise using the triple exponential average calculation, thus eliminating minor short-term cycles that indicate a change in market direction. When interpreted as a leading indicator, TRIX is best used in conjunction with another market-timing indicator – which minimizes false indications.