Time Frame: Medium-Term | Update Schedule: Daily | Source: NYSE
Construction:
The TRIN (TRading INdex) was developed by technician Richard Arms, and has become a staple of almost all technicians' cadre of indicators. Its is more properly referred to as the Arms Index.
It is calculated as follows:
(Advancing Issues / Declining Issues) / (Up Volume / Down Volume)
For example, say we have 1500 issues which closed a given day higher and there was a total of 1.2 billion shares traded in those issues. Also, there were 700 issues which closed lower on a total of 500 million shares. The Arms Index would be:
(1500 / 700) / (1,200,000,000 / 500,000,000) = 2.14 / 2.40 = .89
A reading of 1.0 typically shows that there is even pressure between buying and selling. As selling pressure increases, the Arms Index increases. As buying pressure takes over, the Arms Index drops. Therefore, one usually sees very high readings near market lows and extended bouts of low readings near market peaks.
There have been many interpretations and twists on the Arms Index over the years. We have found that using the 10-day average of daily readings provides an effective counter-trend indication of probable turning points.
The index is most effective when giving counter-trend signals - overbought in the context of a longer-term downtrend, or oversold within an uptrend. Like most contrary indicators, oversold readings during a declining market can continue to become more oversold as the trend persists.
Generally, however, readings which exceed one of the green or red bands on the chart can be considered extreme and indicate that the trend may be becoming exhausted.
