The TRIX reversal trading system is a short-term system that day traders use as instructions for making trades within minutes. It can sometimes be adapted to suit longer trades occurring over a period of several hours.
Explore techniques and examples to use the TRIX reversal trading system in your day trading.
Definition of the TRIX Reversal Trading System
Trading systems provide exact entries and exits so that day traders can trade as efficiently as possible. Day trading systems usually use a price chart, and one or more indicators, and the charts are updated in real time.
The TRIX reversal trading system is calculated using a triple smoothed exponential moving average, which is the same as three consecutive exponential moving averages and can be adapted for long-term trading.
How the TRIX Reversal Trading System Works
The TRIX reversal trading system uses the TRIX metric (triple exponential average) which is found by calculating the log of the input price over the length of time for that input, and then statistically smoothed out three times to create a reliable moving average that eliminates any statistical outliers. The TRIX value is the difference between the previous and current moving average values and is displayed as a value above and below a zero line.
The TRIX reversal trading system then uses a bar or candlestick price chart based on a short-term time frame, from one to five minutes, with a short-term TRIX of between three and fifteen bars, using the typical price as its input (the average of the high, low, and closing prices of each bar). The trade is based on the TRIX reversing its direction, which indicates that the price has started moving in the opposite direction.
When the TRIX is above the zero line, the price has upward momentum, and when the TRIX is below the zero line, the price has downward momentum.
What It Means for Individual Investors
The following step-by-step tutorial of the TRIX trading system uses the NQ (NASDAQ 100) futures market, but the same steps should be used on whichever markets you are trading with this system. The example charts are three-minute bar charts, with a nine-bar TRIX of the typical price.
Step One: Open a Chart
Open a 3-minute OHLC (Open, High, Low, and Close) bar chart.
Step Two: Add the TRIX
Add a nine-bar TRIX of the typical price—calculated by adding together the high, low, and close, and then dividing that amount by three. If you are using Sierra Chart (or other charting software that allows you to color the TRIX bars), color the bars green when the TRIX is moving upward, and red when the TRIX is moving downward. The color difference will make it easier to identify when the TRIX has changed direction.
Step Three: Wait for the TRIX Reversal
Wait until the TRIX changes direction, which should be indicated by the TRIX bars changing color. For example, if the TRIX was moving upward (its bars were green), and it starts to move downward (its bars change to red), then the TRIX has changed direction, and vice versa for the opposite direction.
Step Four: Enter Your Trade
Enter your trade when the high or low of the entry bar (the price bar where the TRIX changed its direction) is broken by a subsequent bar.
On the example chart above, the first trade is a long trade, because the TRIX reversed upward (turned green), and the high of the entry bar (shown in white) was broken by the next bar. The second trade is a short trade, because the TRIX reversed downward (turned red), and the low of the entry bar (shown in white) was broken by the next bar.
Step Five: Manage Your Trade
The TRIX Reversal trading system does not have a specific exit, except for an entry in the opposite direction. For example, if you are in a long trade, and the chart shows a short entry, you would exit the long trade and enter the short trade. On the example chart, the long trade only went three ticks into profit, so it would probably have been a losing trade, but the subsequent short trade went 34 ticks into profit, so it easily covered the losing trade and made some additional profit.
If your stop-loss is reached before an entry in the opposite direction, you will exit with your stop-loss, and then remain flat (no active trades) while you wait for the next entry.
Step Six: Repeat the Trade
Repeat the TRIX reversal trade from step 3 (wait for the TRIX reversal), until either your daily profit target has been reached or your market is no longer active—meaning that it is closed or no longer moving decisively.
- The TRIX reversal trading system is used by day traders.
- It is a system primarily showing pricing and indicators to signal when to enter and exit short-term trades that occur within minutes.
- The TRIX can be adapted sometimes for day trades occurring over several hours.
- The trade is based on the TRIX reversing its direction, which indicates that the price has started moving in the opposite direction.