Triple Exponential Average - TRIX
Categories: Metrics
See: Triple Exponential Moving Average - TEMA.
Stock prices (and the prices for any asset) bounce around over time. They go up. They go down. Some of these moves represent steps in long-term trends. Some are just day-to-day nonsense. Like...some billionaire needs to sell shares so she can raise cash to build a radar on her personal space station. It has nothing to do with the supply/demand outlook for the stock in question. It's just a blip that won't matter in the long-run.
The triple exponential average is meant to remove some of the noise from price movements. It starts with a triple exponentially smoothed moving average.
We'll break that one down a bit. A moving average flattens out short-term fluctuations. It's constructed using the average price for some previous period of time. Those averages then become points in a line. That line, the moving average, traces a longer-term trend line...one that leaves out some of the meaningless bouncing around the price takes on a moment-to-moment basis.
Now to the triple exponent part. It just indicates how the moving average is calculated. The math is complicated, but think of it in terms of "these grapes are triple-washed for freshness." Like, "we just sprayed this moving average with a triple-wash of math, so you know it's fresh and smooth."
The TRIX tracks the percentage change in that special moving average. It puts the changes in average price in context with the overall price of the stock. A $1 move for a $10 stock means much more than a $1 move for a $100 stock.
The TRIX, then, represents a technical analysis tool that is meant to strip out the meaningless moves and focus on the price changes that actually matter long-term. It's considered a momentum indicator.
Related or Semi-related Video
Finance: What are moving averages?7 Views
Finance a la shmoop... what are moving averages? ooh I need another tissue that [Girl crying]
average I just can't get enough so moving okay yeah yeah that's not at all
what this term is about here's a chart here's a set of trailing averages 50-day
the blue line they're hundred-day the black line and 200-day the green line
there... note that we say trailing average why trailing? well people we lost our
crystal ball yeah Warren we know you took it [Warren Buffett eating dinner]
so averages for normal humans can only be trailing because trailing stockticker
closing prices give us data we can actually use stock averages don't take
future data that we're merely guessing at on their charts... only
real numbers that we can actually point to so here's the 50-day average for [50-day average for coca cola stock]
coca-cola stock KO in 2012 and if we move forward a year and change well here
it's a 50-day average right there looks a little bit different and while the 50
data input elements from its closing price each day vary so the average of
those data points will move and why do moving averages matter well for
fundamental analysts kinds of investors you know the people who care just about [Fundamental analyst people appear]
the cash flow and earnings and margins and revenue growth of companies well
really don't matter but for chartist types of investors that is those who
focus really only about trading trends and shapes and curves and the metrics
behind what patterns of stocks take in the future well, they matter a lot then
in fact the 200-day moving average is generally a kind of Chartist living [Priests in church]
Bible for most Wall Street traders and taking meaning from it is all about
recognizing patterns and then imputing likely future patterns based off of
those shapes for example if you're looking here at the peak of a Head and [Head and shoulders stock price graph]
Shoulders chart, the trailing average of this
say 50-day set here of data points is the line about here but if you move
forward and look at the back half well then the moving average is about here [Moving average lines moves]
and if you consider the entire chart well it's about here and the lines are
there in theory to give color as to what direction the
market or this given stock is heading and yep sometimes it works and sometimes
it doesn't [Man eating dinner with Warren Buffett]