The foreign exchange market is a global and decentralized market where traders buy and sell currency pairs with the goal of profiting from fluctuations in exchange rates. The forex market is the largest financial market in the world, with a daily trading volume of over $6 trillion. To make informed trading decisions in the forex market, traders often use technical analysis tools. One such tool is the Triple Exponential Average TRIX Trend Cycle, which was developed by Jack Hutson. TRIX Cycle can be used to detect overbought or oversold market conditions while also functioning as a Momentum indicator. Triple smoothing is utilized in TRIX to eliminate cyclic components with a period shorter than its own, and positive and negative zones indicate the overbought and oversold states, respectively.
Trix Trend Cycle Strategy
The Triple Exponential Average (TRIX) is an oscillator used to identify overbought or oversold market conditions and momentum, with the distinct feature of filtering out price noises and avoiding lag, common with most moving averages. When using TRIX, a buy signal is triggered when the indicator crosses the zero line from below, which is known as “bulls’ divergence.” In contrast, a sell signal is initiated when the indicator crosses the zero line from above, referred to as “bears’ divergence” with prices. The indicator’s ability to filter out the noise and prevent lag makes it a valuable tool for traders seeking to reduce false signals and obtain a more accurate view of market conditions.
Trix Trend Cycle Calculation
Initially, the calculation involves determining the Exponential Moving Average of a given price.
| Sign | Description |
|---|---|
| Price(i) |
|
| N |
|
| EMA1(i) |
|
Afterward, the obtained average undergoes a second smoothing process known as double exponential smoothing.
| Sign | Description |
|---|---|
| EMA1 |
|
| N |
|
| EMA2(i) |
|
Through another process of exponential smoothing, the Double Exponential Moving Average is further smoothed, resulting in the Triple Exponential Moving Average.
| Sign | Description |
|---|---|
| EMA2 |
|
| N |
|
| EMA3(i) |
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Subsequently, the indicator is calculated.
| Sign | Description |
|---|---|
| EMA3(i) |
|
| i |
|
| TRIX(i) |
|
Trix Trend Cycle Pros & Cons
Pros
- Trix Trend Cycle is a versatile indicator that can be used to identify market trends and momentum, as well as overbought and oversold conditions.
- The indicator’s triple smoothing process helps to eliminate cyclic components in price movements, resulting in a more accurate and reliable signal.
- By using the Trix Trend Cycle, traders can reduce false signals and obtain a clearer view of market conditions, leading to better trading decisions.
Cons
- The Trix Trend Cycle, like any technical indicator, is not perfect and may produce false signals or unreliable information at times.
- The indicator may not be suitable for all trading styles and strategies, as its triple smoothing process may result in slower signals that may not be suitable for scalping or short-term trading.
- The Trix Trend Cycle is a lagging indicator, which means that it may not be able to anticipate sudden changes or shifts in market conditions.
Conclusion
The Trix Trend Cycle is a versatile indicator that can provide traders with valuable insights into market trends, momentum, and overbought/oversold conditions. While its triple smoothing process results in more optimized signals, it may not be suitable for all trading styles, and traders should be aware of its potential for producing false signals or lagging behind sudden changes in market conditions.
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