In this article we will be looking at the TRIX indicator. TRIX is an oscillator, showing whether the cryptocurrency is currently within overbought or oversold conditions.
The TRIX indicator works through the use of exponential averages in order to identify whether a cryptocurrency is overbought or oversold. We can tell whether a cryptocurrency is overbought or oversold, by the line’s position in relation to the centre line (+-0).
If the TRIX is above the centre line then the cryptocurrency is considered overbought, with the line within the green area as shown below.
BTC/USD TRIX indicator
On the contrary, if TRIX is below the centre line then the cryptocurrency is considered oversold, as shown below.
LINK/USD TRIX indicator
From looking at TRIX trends we can fish out buy and sell signals with the indicator. We find signals from the indicator by looking at historical turning points on the timeframe of our choice. For example, below we can see that the TRIX produces sell signals for BTC. These sell signals are produced when TRIX hits the value 32.4 on the hourly chart. Once the value 32.4 is hit, the sell signal is received with BTC then moving down, as shown below.
As well as providing historical sell signals, the TRIX also provides buy signals. This is demonstrated below with LINK. When TRIX hits the value -19.79 on the 4hr chart, this is a historical TRIX buy signal for LINK.
TRIX accuracy for buy / sell signals
A good measure for judging TRIX buy / sell signals, is the distance between the sell or buy value and the peak of that move. For example, the BTC sell signal is more accurate than the LINK buy signal. The way in which we calculate this is shown below.
BTC sell value = +32.4
BTC peak of moves used for data:
- + 32.4
- + 38.3
- + 36.9
- + 33.2
Average peak = (32.4+38.3+36.9+33.2) / 4 = +35.2
BTC sell value & peak difference = 38.3 – 32.4 = +5.9
BTC sell value & average peak difference = +2.8
LINK buy value = -19.79
LINK trough of moves used for data:
- – 19.79
- – 30.30
- – 46.59
- – 32.63
- – 49.18
Average trough = (-30.30+ -46.59+ -32.63+ -49.18+ -19.79) / 5 = -35.698
LINK buy value & peak difference = 49.18 – 19.79 = -29.39
LINK buy value & average peak difference = 35.698 – 19.79 = 15.908
Accuracy for buy / sell signals conclusion
Due to the higher sell / buy value & average peak difference of LINK (15.908 (LINK) > 2.8 (BTC)), there is an increased possibility of LINK providing a false buy signal in comparison to TRIX BTC providing a false sell signal. Alongside this, in the historical data from the example, the data points for LINK to move further away from the average peak than BTC.
|Coin||Peak / rough data point taken||Average peak / trough||Difference|
Due to the data points moving further away from the average, this increases spread, increasing the likelihood of false signals. Therefore, in this example using the BTC TRIX sell signal would be recommended due to the low deviation of data points from the average peak calculation. With LINK, the example given would not be recommended due to the high deviation of data points from the average peak. The high deviation means that the likelihood of LINK falling further on the 4hr chart after the buy signal has been released is increased.
In conclusion the TRIX is a useful indicator to show the momentum of a cryptocurrency. As shown with the BTC example, it can also provide useful indications as a buy/sell indicator as well as showing when a cryptocurrency may be overstretched. Although like all indicators, using the TRIX alone is not recommended and should be used alongside other indicators.