Trix Tricks

Originally Posted by ragh_ash

hi karthik,
why have stopped posting on this thread. just when i was getting a hang of these indicators, i find the discussion has stopped mid way. please restart.
regards
ragh_ash

Originally Posted by Karuna

Dear ragh_ash,

We all are missing Karthik, especially in the chat room, but he is home for his holiday. You see, he stays in Kuwait, all alone, and has come down to India to be with his family.

Regards,
Karuna

Originally Posted by karthikmarar

Roneeth, Amit, Saint

Thanks for your kind words of encouragement.

Learning and Sharing....Amit and Saint..This ..I learnt from you guys...Two months in this forum has put my TA knowledge in a different orbit..Thanks to you..

regards

karthik

Originally Posted by rajesh.sadhanala

Excellent information Karthik uncle.
Would like to get Metastock soon and play around with TRIX.

RaJ

Originally Posted by karthikmarar

Hi Friends


More Observations on the TRIX Indicator.

TRIX is a Triple smoothed moving average of the difference in price. The MACD is the difference between two moving averages, a short one and a long one. Both these indicator are based on moving averages. Both oscillate around a zero line. Now an interesting question.. how would the behavior of these two indicator compare ?

Plot the MACD and TRIX on the same chart, preferably in the same window. Use different scales for both as the range of the indicator values differ. The result is will be quite surprising. They are almost identical. It is almost as if one indicator could replace the other. Just look at the enclosed chart of the Nifty Junior. However a more careful look would bring out some differences. The peaks and troughs of the TRIX are more pronounce compared to the MACD. Another important difference is that TRIX brings out Divergences more clearly. If you look at the enclosed chart the bullish divergence in April was shown by TRIX when MACD failed to show it clearly.

Let us now look at the TRIX and the MACD Histogram. According to Dr. Alexander Elder the MACD Histogram is one of best tools available to the Technician. It also forms a part of his famous Triple screen Trading system.

MACD histogram is nothing but the difference between the MACD line and the signal line plotted as a Histogram. Now Let us plot the Histograms of TRIX and a signal line. I plotted the Histograms of MACD and TRIX ( I used a signal line of 3 day moving average of the TRIX). You can see the result yourself in the enclosed chart. Amazing isn’t it!
The look so identical like twins. So all the trading rules of MACD Histogram would be applicable to TRIX Histograms also.

The Trading rules can be listed as follows

• 1.The slope of the Histogram is more important. Upwards slope indicates bullishness and Downwards slope indicates bearishness. Buy when the Histogram stops falling and starts moving up again. Sell when the Histogram stops rising and starts moving down. Of course in the daily charts the up and downs of the Histogram are numerous. The Histogram on the weekly charts provides good buying opportunities.
• 2.The second important signal from the Histogram is divergence. The occurrences are rare but they provide very sound trading opportunities. By way the TRIX by itself provides good divergence signals.

I was surprised to see such close similarities between the TRIX and MACD Indicators. But after all the both are based on moving averages. If you look closely at the enclosed chart of the Nifty junior the MACD and TRIX Histogram cross above and below the zero line when the price crosses above and below the 13 days moving average !! So it would appear that a simple moving cross over system would be simplest and robust Trading system. Any comments?

Warm regards

karthik

Originally Posted by karthikmarar

Hi Friends

Now that the much-awaited correction has come (hopefully ends here) and when we wait for the dust to settle down and the market becomes stable, maybe we can devote some time on our educational pursuits.

I would like to share the little knowledge I have gained on a often neglected Indicator TRIX, which I have found quite useful for indication of Trend Reversals.
TRIX calculates a triple exponential moving average of the Price input. It uses the difference between the current price and the previous price. Since most would find reading a long post tedious, I will skip the basics of TRIX indicator and proceed directly to the point of interest.

TRIX and Trend reversal

Now we will see how I use the TRIX to indicate the Trend Reversals. The TRIX Oscillates around zero. Extreme positive values indicate overbought conditions and extreme negative values indicate oversold conditions. Also the change in direction of the TRIX indicates reversal of the trend. The turn around of the TRIX normally leads the price giving an early indication of trend changes. Ideally one should Buy when TRIX goes to the extreme negative value and turns around and sell when the TRIX goes to the extreme positive values and turn around According to my studies turn around at extreme negative values provides very good entry points. See chart 1. However it is better to look for other confirmations before actual entry. If you have a screener to filter out stocks that are turning around from negative values you will come up with some good ones about to start an up trend. I also notice that most stocks have the TRIX turning around when price makes a higher pivot low (indications of a intermediate up trend). See enclosed chart 2. I use the Metastock to screen for stocks that are turning around from downwards to upwards. (I use a nine-day TRIX). I look for the negative TRIX values and usually it gives good list of stock with good chances to move up. Then I study the charts for the best possible candidates. As per my experience Turn around from up side to downside often takes one out of a good trade much before the trend actually turns down. So it is better not to base the trade exit on the TRIX. I feel it is better to ride the trend and try to get the maximum using trailing stop loss.

Just to summarize

1. TRIX reversals normally lead the trend reversal.
2. TRIX reversal from downward to upward provide good entry
opportunities especially at negative values.
3. Once you have a list of good candidates study the chart and look for
confirmation for entry.
4. It may be better not to Exit trades based on TRIX. Using normal trailing
stoploss.

.....oops.. I can only upload upto three charts....so let me continue in the next post...