[Crypto Trading Using Trix Indicator] - Crypto Academy /S6W3-Homework Post for professor @kouba01
Hello everyone. Hope you all are doing good. I welcome you all in another week of sixth season. This week, the professor @kouba01 has taught us about the "Crypto Trading using Trix Indicator". This is my homework task.
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Question 1.
Discuss in your own words Trix as a trading indicator and how it works
The crypto market is highly versatile where the price of the coins are not stables and keep changing time to time. The traders keep doing the trading and their buying and selling pressure effect the movement of the market. The market behave according to the moves of the traders in the market. So the traders first analyze the market before taking the trading decision. There are multiple tools and strategies and the indicators are use to analyze the market to predict the future of the market.
The Trix indicator is technical based tool which is use in the crypto world to predict the price movement in the crypto world. This indicator is also known as the Tripple Exponential Average. This indicator was introduced in order to smooth the three EMA where three EMA has been used for its calculation. This is the momentum based indicator which use the 3 EMA for calculation and then smooth it to get more accurate results.
The EMA is a technical based indicator which react to the price very fastly. Very fast signals on price fluctuation are being produced. Here even minor and small price fluctuations are even countered because of which some irrelevant and false signals are generated. The traders may get mislead and may make the false decisions. They may sometime lose their money because of this noise and false signals.
But when we combine the three EMA, the noise can be filtered out. This is the main and basic purpose of the EMA to filter out the noise and reduce the false signals which are produced by using the MA and EMA. Thus this is highly useful to avoid the false signals. Not just this, the Trix indicator is being used to predict the market trend. We get more relevant and useful signals which can be use to predict the trend of market. By using the signals produced by the Trxi indicator, the traders can take the wise trading decisions.
We can also use the Trix by combining with other indicators. It will help the traders to get the best entry spots. They would have a clear view of the market.
How Trix Indicator Works
Just like EMA the Trix also is shown on the chart in form of a line which is use to draw the assets trend. This indicator work similar to the exponential moving average. The EMA is a simple technical indicator which is drawn in form of a line to draw the market trend. But the drawback of the MA and EMA is that they react very fastly to the change of price.
The noisy and irrelevent signals are produced which distract the traders. The MA and EMA cannot filter out these signals. Thus they effect the trading capability of the traders. When the volatility get high, the high number of signals are produced and create noise. The basic purpose and idea behind creation of the Trix indicator is to make such an indicator which can filter out the noise and reduce the irrelevant unwanted signals.
This indicator was introduced by Jack Huston in 1980 when he combined the three EMA to filter out noise and reduce the wanted signals. The combination of three exponential moving average work magically to reduce the back ground noise and a clear and useful signals are produced to traders. Thus traders can take the trading decisions more effectively and can trade successfully.
This indicator look like the MACD indicator on chart. It consist of a single line which oscillate above and below the Zero points and show the price movement on chart. The movement of the trix below and above the zero level helps the traders to get the market trend information. The traders get a lot of trading signals from this movement of Trix line. When the Trix line cross the zero level while moving upward, it indicate that there is uptrend.
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When the Trix line cross the zero line while moving downward, it indicate that there is downtrend in the market. The traders can easily determine the market trend and can decide what to do next in the market. The traders can find out the trend reversal points using the divergence of trxi indicator and asset's price. So thsi indicator also use for the determination of the trend reversals.
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Question 2. Show how one can calculate the value of this indicator by giving a graphically justified example? how to configure it and is it advisable to change its default setting? (Screenshot required)
While calculating the value of any technical indicator in the crypto market, the historical price data is use to determine the future of price. The Trix is a technical indicator which use the price historical data to predict the future trend.
The mathematical model of historical/previous data like opening price, closing price low and high price of coin is use for calculation the Trix indicator. When the past price data is related with the present price data, the traders can then easily calculate the future price of the coin easily.
The three EMA are being used and taken into the account while calculation of Trix indicator. Its mean that we have to find the value of three Exponential Moving Average first. For this, we first calculate the value of first Exponential Moving Average. Then this value is used to generate the value of remaining two exponential moving average.
For calculation of the exponential moving average, the closing price of previous data over certain time period is used. Then after having a value, we can determine and calculate the value of rest components. The formula for calculation of the exponential moving average is as follow:
- Exponential Moving Average = (closing price x weight ) + (Previous EMA) × (1 - weight)
After finding value of moving average, we can find out the value of other two. Then the three EMAs is calculated thus;
EMA(first)= EMA ( p, N, 1)
- N= number of period
- P= current price
EMA(double) = EMA (EMA(firs)t, N, p)
- N= Number of period
- P= current price
EMA(tripple) = EMA ( EMA(double) N, p)
- N= number of period
- P= current price
N = number of period under consideration and p is the current price.
The EMAthird is the third exponential moving average. After calculating value of this EMA< we can easily calculate the Trix indicator using the following formula.
- TRIX =[EMA(tripple) (price)- EMA(tripple) (t-1) ]/[EMA(tripple) (price-1)
In order to use an indicator, we first need to know about its setting. When length get involve, we should have clear understanding at which length the indicator work best. The length of the Trix indicator is the number of period. We use the number of period while calculating the trix which is counted as its length. By default, the number of period for Trix indicator is set at 14 period. This is default setting for the trix indicator period.
One can change the setting according to their own need. The setting which goes suitable for their trading scenarios and trading plans, can be set by clicking on the setting icon. When we click on the setting icon, a new window get open.
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We can change the period over there. Set the period length according to your trading demand and suitable for your trading style. The traders who have the plan to do the long term trading should go for the long length. The short length of period is more suitable and suggested for intraday or daily traders. The short term traders should go with the short period length.
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Not just this, but we can also change the color of line by clicking on the style section. We can set the color of the Trix indicator line according to our own need, demand or will. We can also change the zero line of the indicator. We can change its color too. After applying the required setting, click on the Ok button to apply it.
Question 3. Based on the use of the Trix indicator, how can one predict whether the trend will be bullish or bearish and determine the buy/sell points in the short term and show its limits in the medium and long term. (screenshot required)
Trix indicator is trend based indicator which is use to determine the trend of the market. The traders can find out the market direction using the trix indicator. There is a zero line in the Trix indicator. The Trix line oscillate above and below the zero line. When it cross the zero line, the trend reversal occur. When the line move from bottom to above and cross the zero line, the trend is said to be the bullish. It is said that the market is trending upward when the trix line cross the zero line moving from lower to upper side.
When the line move from op to bottom and cross the zero line, the trend is said to be the bearish. It is said that the market is trending downward when the trix line cross the zero line moving from top to bottom
The sell signals are produced when the trix line start moving from top to bottom and hit the zero line. Wehn it touch the zero line, the traders should exit from the market because the market is going toward the bearish trend. So when the trix line hit the zero line while moving from top to lower side, the sell signals are produced.
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The buy signals are produced when the trix line start moving from bottom to top and hit the zero line. Wehn it touch the zero line, the traders should enter into the market because the market is going toward the bullish trend. So when the trix line hit the zero line while moving from bottom to top , the buy signals are produced. The buy order should execute immediately when the zero line is hit by the trix line while moving upward.
The trix is a technical based indicator which which help to determine the market trend. It also produce very clear signals by filtering out the noise and unwanted signals. In the below picture, we have marked them as 1,2 and 3. The coin in first part cross the zero line from moving top to down and entered into the bearish zone. It was long term trading because the coin stayed in that zone for long time period.
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In the below image, we have a flatten view of the chart. There is no clear market trend. Market is not moving in a certain direction. The trix filtered out the noise and provide us a clear and crystal view of the chart.
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In the last image, the market crossed the zero level from moving bottom to top and move down, it indicate that market has been entered into the bullish trend. But it was short term trading because the coin bought up out from that region after a short time period. So it was a short term trading. Traders had planned to perform the trading for short time period.
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Question 4. By comparing the Trix indicator with the MACD indicator, show the usefulness of pairing it with the EMA indicator by highlighting the different signals of this combination. (screenshot required)
The Trix indicator is technical based tool which is use in the crypto world to predict the price movement in the crypto world. This indicator is also known as the Tripple Exponential Average. This indicator was introduced in order to smooth the three EMA where three EMA has been used for its calculation. This is the momentum based indicator which use the 3 EMA for calculation and then smooth it to get more accurate results.
In EMA, even minor and small price fluctuations are even countered because of which some irrelevant and false signals are generated. The traders may get mislead and may make the false decisions. They may sometime lose their money because of this noise and false signals.
But when we combine the three EMA in Trix indicator , the noise can be filtered out. This is the main and basic purpose of the EMA to filter out the noise and reduce the false signals which are produced by using the MA and EMA. Thus this is highly useful to avoid the false signals. Not just this, the Trix indicator is being used to predict the market trend. We get more relevant and useful signals which can be use to predict the trend of market. By using the signals produced by the Trxi indicator, the traders can take the wise trading decisions.
We can also use the Trix by combining with other indicators. It will help the traders to get the best entry spots. They would have a clear view of the market.
The best time to take a decision is when the Trxi line reach to the extreme level of the indicator. Line if the Trix line reached to the extreme lowest side, the buy order should be place because after each bearish trend, the bullish trend occur. When the trix line is at extreme upper side, we should place the sell order because now a down trend is expected.
The EMA in trix is use to filter out the false and unwanted signals. It is serve as a line which make the trix presently similar to the MACD indicator.
In the below chart, we have added the Trix indicator with moving average 9. MA is serving as signal line here. We didn't change the length of the Trix and MA line. We have also added a MACD indicator. We go with the default setting of MACD indicator without changing length of its parameters.
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We can see that both indicator have a zero line around which, it oscillate. The indicator move up and down to the zero line to determine the market trend. When the line of MACD and Trix cross the zero line moving downward, the downtrend occur. When the Trix and MACD indicator cross the zero line while moving upward, the uptrend occur. The crossing of zero line indicate the trend reversal.
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But we can see clearly from above chart that the Trix indicator is more clear and smooth as compare to the MACD because the trix filter out false signals and produce the clear view of the market.
Question 5. Interpret how the combination of zero line cutoff and divergences makes Trix operationally very strong.(screenshot required)
The Trix indicator consist of a zero line and a moving line. The trix line oscillate above and below the Zero line and show the price movement on chart. The movement of the trix below and above the zero level helps the traders to get the market trend information. The traders get a lot of trading signals from this movement of Trix line. When the Trix line cross the zero level while moving upward, it indicate that there is uptrend. This is best chance to enter into the market because a bullish trend is going to happen in market.
When the Trix line cross the zero line while moving downward, it indicate that there is downtrend in the market. This is best selling spot because a downtrend is on the way. The traders can easily determine the market trend and can decide what to do next in the market. The traders can find out the trend reversal points using the divergence of trxi indicator and asset's price. So this indicator also use for the determination of the trend reversals.
It become more strong and we can have more accurate and authentic results to trade successfully if we combine the Trix indicator with support and resistance level. Moreover, divergence is also another important thing and highly considerable factor which can amplify this signal.
In the below chart, we can see that the bearish divergence occured. The bearish divergence occur when the price on the chart create the high but the indicator create the low. This indicate that there will be a downtrend and coin will move downward after the bearish divergence occurrence. This is the earlier bearish signal. In the below screen short, we can see that the chart price is showing the high move but the trix indicator show the low move. This mean that the bullish trend is going to switch into the bearish trend in upcoming future.
After the appearance of the divergence signal, the MA line and Trix line cross each other This confirm the sell entry. We should place the sell order when such situation are seen on the chart.
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In the below chart, we can see that the bullish divergence occured. The bullish divergence occur when the price on the chart create the low but the indicator create the high. This indicate that there will be a uptrend and coin will move upward after the bearish divergence occurrence. This is the earlier bullish signal. In the below screen short, we can see that the chart price is showing the low move but the trix indicator show the high move. This mean that the bearish trend is going to switch into the bullish trend in upcoming future.
After the appearance of the divergence signal, the MA line and Trix line cross each other This confirm the buy entry. We should place the buy order when such situation are seen on the chart.
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Question 6. Is it necessary to pair another indicator for this indicator to work better as a filter and help eliminate false signals? Give an example (indicator) to support your answer. (screenshot required)
No indicator is 100% accurate. No doubt that Trix is very effective indicator which can produce very useful signals to trade successfully and the traders can enter and exit from the market at very good timing, but still it is not recommended to use the Trix indicator alone. If we combine it with other indicator, its effectiveness will be enhanced. The accuracy of the result get enhanced and the traders get more authentic output.
The good approach to perform the technical analysis on base of indicator is combining two to three indicators in order to get more accurate and authentic results. Combining two to three indicator will produce more authentic results which will give the confidence to the traders to perform well and confidently.
I have combined the MA(20,50) trading starategy with the Trix indicator. When the Trix indicator will hit the zero line and move upward, the buy signals will be produce, first we will confirm the buy signals from the MA and then will place the buy order. Similarly, When the Trix indicator will hit the zero line and move downward, the sell signals will be produce, first we will confirm the sell signals from the MA and then will place the sell order.
In the below screen short, we have combined the Trix indicator with MA(20,50). The Trix line was oscillating around the zero line. When it touch the zero line from moving down to up, it produce the buy signals. It indicate that the uptrend is going to be place in the market so traders should enter into the market. But before taking the trading decision, we will confirm the buy signals from the Moving average. The moving average 20 cross the moving average 50 while moving upward which indicate that the market is going to uptrend. The uptrend signals are produced by both indicators it mean that buy signals are authentic. Now will will place the Buy order there.
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In the below screen short, we have combined the Trix indicator with MA(20,50). The Trix line was oscillating around the zero line. When it touch the zero line from moving top to down , it produce the sell signals. It indicate that the downtrend is going to be place in the market so traders should exit from the market. But before taking the trading decision, we will confirm the sell signals from the Moving average. The moving average 20 cross the moving average 50 while moving downward which indicate that the market is going to downtrend. The downtrend signals are produced by both indicators it mean that sell signals are authentic. Now will will place the sell order there.
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Question 7 - List the pros and cons of the Trix indicator
Advantages of Trix Indicator
The Trix react to the price very fastly while applying a smoothen strategy in order to produce the relevant and useful signals.
The traders get the more accurate and authentic output from the trix indicator. The output produce from the trix indicator is very useful for the traders to perform the trading successfully.
The traders can determine the market trend easily. When the trix line touch the zero line while moving above, it indicate that there is bullish trend. When the trix line touch the zero line while moving down, it indicate that downtrend is going to occur in the market.
This indicate is very easy to understand and it work in very simple way. It has just one line which oscillate and give us signals about the price action on chart.
This indicator filter out the noise and reduce the false signals. So only the relevant and smooth, clear results are given to the traders about the crypto market structure.
The divergence between the price and indicaror is very important tool to identify the trend reversal.
When the trix line touch the zero line while moving in a particular direction, the trend reversal occur.
This indicator produce the signals of best buying and selling opportunities. The traders can enter and exit the market at best time and good spots while making profit by using the trix indicator.
Disadvantges of the Trix indicator
The trix indicator useful only in the trending market. When there is a clear market trend and market have a clear direction, this indicator is useful only in that situation. In case of ranging market, its effectivity effects and it cannot produce the useful signals.
It is less reliable in case when market is highly volatile because it react to the price very fastly. So its applied smoothening function sometime produce the wrong and irelevant results.
This indicator have the lagging nature. This indicator lag behind the price.
When we use the Trix indicator alone, it produce the false results. So we have to combine it with other indicators in order to get the authentic and effective results. Using it alone is threat because it may produce the false results.
This indicator do not give us the exact spot to exit from the market. This do not give us the exact point to place the sell order.
Conclusion
The Trix indicator is technical based tool which is use in the crypto world to predict the price movement in the crypto world.
When we combine the three EMA with Trix indicator, the noise can be filtered out. This is the main and basic purpose of the EMA to filter out the noise and reduce the false signals which are produced by using the MA and EMA. Thus this is highly useful to avoid the false signals.
This indicator was introduced in order to smooth the three EMA where three EMA has been used for its calculation. This is the momentum based indicator which use the 3 EMA for calculation and then smooth it to get more accurate results. The traders can determine the market trend easily. When the trix line touch the zero line while moving above, it indicate that there is bullish trend. When the trix line touch the zero line while moving down, it indicate that downtrend is going to occur in the market.
The divergence between the price and indicaror is very important tool to identify the trend reversal. When the trix line touch the zero line while moving in a particular direction, the trend reversal occur. This indicator produce the signals of best buying and selling opportunities. The traders can enter and exit the market at best time and good spots while making profit by using the trix indicator.
But this indicator lag behind the price and only useful in trending markets. Sometime, it produce the false results so we have to use it while combining with some other indicator.