TRADING TECHNIQUES

# When And When Not To Trade

Trading In Tempo With TRIX

by Jongseon Kim

Make entry and exit decisions using TRIX.

For profitable trading, deciding when to buy and when to sell is one piece of the puzzle. But another, perhaps more important piece is deciding when to trade and when not to trade. When you have no stocks in hand and you're considering purchasing some, you tend to have a more objective perspective about the trend of the stock you're examining. However, after buying the stock, you may lose your objective outlook. Because of this, selling should be weighted more heavily than buying.

THE TRIX

In this article I will illustrate how you can use the TRIX (triple exponential smoothing oscillator), a technical indicator developed by Jack Hutson (publisher of STOCKS & COMMODITIES), to help you decide when and when not to trade. For the sake of simplicity, I will only take long positions into account. The TRIX can be obtained by using the following formula:

Calculating TRIX

1 Select a number of periods to represent the time frame you are trading. I recommend using five.
2 EMA1: Calculate the n-period EMA of the close.
3 EMA2: Calculate the n-period EMA of EMA1.
4 EMA3: Calculate the n-period EMA of EMA2.

` TRIX = (EMA3[today] - EMA3 [yesterday]) / EMA3[yesterday]`

TRIX usually has two components. The first component is called TRIX, which is shown as a black line in Figure 1. The second component is called the signal line, which is shown in red on Figure 1. This is the n-period EMA of the TRIX and is used to eliminate false signals. I often use the value 3 as the number of periods.

FIGURE 1: BOUNCE (B), GOLDEN CROSS (GC), FALL (F), AND DEAD CROSS (DC). These are used in the entry, exit, and rest rules.

....Continued in the January 2004 issue of Technical Analysis of STOCKS & COMMODITIES

Excerpted from an article originally published in the January 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.

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