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...
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...
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