Trix (technical analysis)

Last updated

Trix (or TRIX) is a technical analysis oscillator developed in the 1980s by Jack Hutson, editor of Technical Analysis of Stocks and Commodities magazine. It shows the slope (i.e. derivative) of a triple-smoothed exponential moving average. [1] [2] The name Trix is from "triple exponential."

Technical analysis security analysis methodology

In finance, technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis, which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis which states that stock market prices are essentially unpredictable.

An oscillator is a technical analysis indicator that varies over time within a band. Oscillators are used to discover short-term overbought or oversold conditions.

Derivative Operation in calculus

The derivative of a function of a real variable measures the sensitivity to change of the function value with respect to a change in its argument. Derivatives are a fundamental tool of calculus. For example, the derivative of the position of a moving object with respect to time is the object's velocity: this measures how quickly the position of the object changes when time advances.

Trix is calculated with a given N-day period as follows:

Like any moving average, the triple EMA is just a smoothing of price data and, therefore, is trend-following. A rising or falling line is an uptrend or downtrend and Trix shows the slope of that line, so it's positive for a steady uptrend, negative for a downtrend, and a crossing through zero is a trend-change, i.e. a peak or trough in the underlying average.

Trend following or trend trading is a trading strategy according to which one should buy an asset when its price trend goes up, and sell when its trend goes down, expecting price movements to continue.

The triple-smoothed EMA is very different from a plain EMA. In a plain EMA the latest few days dominate and the EMA follows recent prices quite closely; however, applying it three times results in weightings spread much more broadly, and the weights for the latest few days are in fact smaller than those of days further past. The following graph shows the weightings for an N=10 triple EMA (most recent days at the left):

Triple exponential moving average weightings, N=10 (percentage versus days ago) Triple exponential moving average weightings N=10.png
Triple exponential moving average weightings, N=10 (percentage versus days ago)

Note that the distribution's mode will lie with pN-2's weight, i.e. in the graph above p8 carries the highest weighting. An N of 1 is invalid.

The easiest way to calculate the triple EMA based on successive values is just to apply the EMA three times, creating single-, then double-, then triple-smoothed series. The triple EMA can also be expressed directly in terms of the prices as below, with today's close, yesterday's, etc., and with (as for a plain EMA):

The coefficients are the triangle numbers, n(n+1)/2. In theory, the sum is infinite, using all past data, but as f is less than 1 the powers become smaller as the series progresses, and they decrease faster than the coefficients increase, so beyond a certain point the terms are negligible.

Related Research Articles

The relative strength index (RSI) is a technical indicator used in the analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The indicator should not be confused with relative strength.

Moving average type of statistical measure over subsets of a dataset

In statistics, a moving average is a calculation to analyze data points by creating a series of averages of different subsets of the full data set. It is also called a moving mean (MM) or rolling mean and is a type of finite impulse response filter. Variations include: simple, and cumulative, or weighted forms.

In stock and securities market technical analysis, parabolic SAR is a method devised by J. Welles Wilder, Jr., to find potential reversals in the market price direction of traded goods such as securities or currency exchanges such as forex. It is a trend-following (lagging) indicator and may be used to set a trailing stop loss or determine entry or exit points based on prices tending to stay within a parabolic curve during a strong trend.

MACD trading indicator used in technical analysis of stock prices

MACD, short for moving average convergence/divergence, is a trading indicator used in technical analysis of stock prices, created by Gerald Appel in the late 1970s. It is designed to reveal changes in the strength, direction, momentum, and duration of a trend in a stock's price.

In graph theory, a clustering coefficient is a measure of the degree to which nodes in a graph tend to cluster together. Evidence suggests that in most real-world networks, and in particular social networks, nodes tend to create tightly knit groups characterised by a relatively high density of ties; this likelihood tends to be greater than the average probability of a tie randomly established between two nodes.

Momentum (MTM) and rate of change (ROC) are simple technical analysis indicators showing the difference between today's closing price and the close N days ago. Momentum is the absolute difference in stock, commodity:

Exponential smoothing is a rule of thumb technique for smoothing time series data using the exponential window function. Whereas in the simple moving average the past observations are weighted equally, exponential functions are used to assign exponentially decreasing weights over time. It is an easily learned and easily applied procedure for making some determination based on prior assumptions by the user, such as seasonality. Exponential smoothing is often used for analysis of time-series data.

Savitzky–Golay filter algorithm to smoothen data points

A Savitzky–Golay filter is a digital filter that can be applied to a set of digital data points for the purpose of smoothing the data, that is, to increase the precision of the data without distorting the signal tendency. This is achieved, in a process known as convolution, by fitting successive sub-sets of adjacent data points with a low-degree polynomial by the method of linear least squares. When the data points are equally spaced, an analytical solution to the least-squares equations can be found, in the form of a single set of "convolution coefficients" that can be applied to all data sub-sets, to give estimates of the smoothed signal, at the central point of each sub-set. The method, based on established mathematical procedures, was popularized by Abraham Savitzky and Marcel J. E. Golay who published tables of convolution coefficients for various polynomials and sub-set sizes in 1964. Some errors in the tables have been corrected. The method has been extended for the treatment of 2- and 3-dimensional data.

The commodity channel index (CCI) is an oscillator originally introduced by Donald Lambert in 1980.

The detrended price oscillator (DPO) is an indicator in technical analysis that attempts to eliminate the long-term trends in prices by using a displaced moving average so it does not react to the most current price action. This allows the indicator to show intermediate overbought and oversold levels effectively.

The mass index is an indicator, developed by Donald Dorsey, used in technical analysis to predict trend reversals. It is based on the notion that there is a tendency for reversal when the price range widens, and therefore compares previous trading ranges.

Watts–Strogatz model

The Watts–Strogatz model is a random graph generation model that produces graphs with small-world properties, including short average path lengths and high clustering. It was proposed by Duncan J. Watts and Steven Strogatz in their joint 1998 Nature paper. The model also became known as the (Watts) beta model after Watts used to formulate it in his popular science book Six Degrees.

In technical analysis of securities trading, the stochastic oscillator is a momentum indicator that uses support and resistance levels. Dr. George Lane developed this indicator in the late 1950s. The term stochastic refers to the point of a current price in relation to its price range over a period of time. This method attempts to predict price turning points by comparing the closing price of a security to its price range.

The doji is a commonly found pattern in a candlestick chart of financially traded assets in technical analysis. It is characterized by being small in length—meaning a small trading range—with an opening and closing price that are virtually equal.

In baseball, wOBA is a statistic, based on linear weights, designed to measure a player's overall offensive contributions per plate appearance. It is formed from taking the observed run values of various offensive events, dividing by a player's plate appearances, and scaling the result to be on the same scale as on-base percentage. Unlike statistics like OPS, wOBA attempts to assign the proper value for each type of hitting event. It was created by Tom Tango and his coauthors for The Book: Playing the Percentages in Baseball.

In financial technical analysis, the know sure thing (KST) oscillator is a complex, smoothed price velocity indicator developed by Martin J. Pring.

The true strength index (TSI) is a technical indicator used in the analysis of financial markets that attempts to show both trend direction and overbought/oversold conditions. It was first published William Blau in 1991. The indicator uses moving averages of the underlying momentum of a financial instrument. Momentum is considered a leading indicator of price movements, and a moving average characteristically lags behind price. The TSI combines these characteristics to create an indication of price and direction more in sync with market turns than either momentum or moving average. The TSI is provided as part of the standard collection of indicators offered by various trading platforms.

The Triple Exponential Moving Average (TEMA) indicator was introduced in January 1994 by Patrick G. Mulloy, in an article in the Technical Analysis of Stocks & Commodities magazine: "Smoothing Data with Faster Moving Averages"

The Double Exponential Moving Average (DEMA) indicator was introduced in January 1994 by Patrick G. Mulloy, in an article in the "Technical Analysis of Stocks & Commodities" magazine: "Smoothing Data with Faster Moving Averages"

The zero lag exponential moving average (ZLEMA) indicator was created by John Ehlers and Ric Way.

References

  1. "TRIX Uptrend & Downtrend | Stock Buy & Sell Signal |Technical Analysis". Web.archive.org. Archived from the original on 2016-03-05. Retrieved 2018-03-22.
  2. "TRIX". Web.archive.org. Archived from the original on 2006-01-08. Retrieved 2018-03-22.CS1 maint: BOT: original-url status unknown (link)