The TRIX is a
triple EMA of a stock's closing price, and as such is a momentum
indicator showing the rate of change of price as a percentage. The
main use of the TRIX is to keep you in trends of equal or shorter
duration to the specified period of the TRIX (i.e. the period used
to calculate the EMAs). Oscillating around a zero line, the triple
EMA of the TRIX is designed to smooth out wobbles that would otherwise
affect price. Most traders open a position when the TRIX changes
direction (buing when it turns up and selling when it turns down).
Some even plot a 9 period
moving average of the TRIX itself creating a "signal" line as in
the MACD indicator - buying if the TRIX breaks up thru the signal
line or selling if it falls down thru the signal line. Another popular
use is to look for divergences between the TRIX and price, and trade
these. Day trading traders have little use for the TRIX, as it is
more of a 'swing trading' technical indicator.
To calculate the TRIX,
first calculate an EMA of your chosen period (e.g. 20 days) of the
closing price. Next, calculate an EMA of the moving average calculated
in in the first step of the same period. Then, calculate the EMA
of the moving average calculated in the second step. Finally, calculate
the 1 period (e.g., a single day) percentage change of the moving
average calculated in the third step.