Online Trading Concepts

Arms Index (TRIN)

Arms Index

  1. Arms Index Components & Interpretation
  2. Arms Index Fundamental Problems

The Arms Index , also know as the TRIN - "TRading INdex", (ticker: $TRIN) is an important volume-based confirmation indicator as well as overbought and oversold indicator. The Arms Index has four components listed below:

  1. Advancing Issues on the New York Stock Exchange (NYSE) - $ADV or $NYADV
  2. Advancing Volume on the NYSE - $UVOL or $NYUPV
  3. Declining Issues on the NYSE - $DECL or $NYDEC
  4. Declining Volume on the NYSE - $DVOL or $NYDNV

The formula for the Arms Index is simply:

(Advancing Issues / Declining Issues) / (Advancing Volume / Declining Volume)

The intra-day 5-minute chart of the mini-Dow futures contract shows the $TRIN:

ADX technical analysis indicator

Interpreting the Arms Index

The trend of the Arms Index is usually more important than whether or not the Arms Index is above or below 1. As can be seen in the intra-day chart above, when the mini-Dow was falling in price, the Arms Index was increasing. At 1.5, a very high Arms Index reading, a trader could take a contrarian stance and buy at the 1.5 level. Of course it would be advisable to see a reverse or bottoming of the Arms Index before taking such action. Also notice that when the mini-Dow is increasing, the Arms Index is decreasing.

The Arms Index can be used from a longer term perspective. Some traders use moving averages of the inputs into the Arms Index equation. To illustrate: (10-day Moving Average (MA) of Advancing Issues / 10-day MA of Declining Issues) / (10-day MA of Advancing Volume / 10-day MA of Declining Volume) or one could simply take the 10-day Moving Average of the $TRIN.

There are fundamental problems with the Arms Index, and these probems are discussed on the next page.

Next Page - Arms Index Fundamental Problems

Facebook "Like" & Google+ "Plus" Each Page