Arms Index

From Traderpedia

A market indicator showing the ratio between the average volume of declining stocks and the average volume of advancing stocks.

TRIN is a breadth oscillator which aids in the measurement of internal market strength or weakness. Also known as The Arms Index (because it was invented by Richard Arms), the TRIN is an acronym that stands for The Trading Index.

[edit] Calculation

It is calculated by dividing advancing issues by declining issues and advancing volume by declining volume. The first result is then divided by the latter and the result is the TRIN.

If the index is above one, the average volume of stocks that fell on the NYSE was greater than the average volume of stocks that rose and vice versa.

[edit] Application

TRIN can be used as a rough measure of general market health. Crudely, readings above 1.2 are considered bearish, while below 0.8 bullish. If there is a trend underway, TRIN can help confirm by trending in the same direction.

Extreme readings can be faded as a contrarian play. The indicator rises sharply when the market is most depressed and selling is climaxing and falls to very low levels during buying frenzies.

Divergences can also be useful. For instance, an index might make a higher high, but TRIN does not confirm this with a lower low. This is called a negative divergence and can indicate weakness to come.

The TRIN is commonly used as a short term trading tool.

[edit] See also