TRIN Indicator

The TRIN Indicator, also known as the Short Term Trading Index (Short-Term TRading INdex), is a daily market breadth indicator.  It was invented by Richard Arms in 1967 and thus the TRIN is also referred to as the ARMS Index.

TRIN Indicator

The TRIN Indicator, also known as the Short Term Trading Index (Short-Term TRading INdex), is a daily market breadth indicator.  The technical indicator was invented by Richard Arms in 1967 and thus is also referred to as the ARMS Index.

It has also been known at various times as MKDS and STKS.  The index uses a formula based on NYSE (or Nasdaq) stock market data including number of advancing and declining issues as well as advancing and declining volume to identify short-term overbought and oversold market conditions. 

 

Formula for the TRIN Indicator

The index is calculated by dividing the AD Ratio by the AD Volume Ratio as per the following formula:

The TRIN Indicator uses the NYSE statistics for advancing and declining stocks to predict short term price extremes.

Example calculation of the TRIN indicator

(from StockCharts)

Issues

The TRIN indicator has no maximum value and it is difficult to determine peaks except in hindsight.  As with any overbought / oversold indicator the indicator can provide early or false signals.

Application

Strong market advances are usually accompanied by relatively low TRIN Indicator readings because up volume significantly outweighs down volume to produce a relative high AD Volume Ratio. This is why the indicator appears to move with a negative correlation to the market. A strong up day in the market usually results in a lower value.  Conversely, a strong down day tends to result in a higher value.

The TRIN indicator is volatile and is often smoothed using a moving average.  Using a 10-period Simple Moving Average (SMA) generally provides relatively clear overbought/oversold signals. The TRIN indicator should be used in conjunction with other indicators or filters.  In particular, a trend indicator should be used to establish market long term trend while the TRIN indicator is used to define entry/exit points.

The TRIN indicator can be displayed with a log scale or an arithmetic scale. Log scaling shows an equal distance for equal percentage movements. Arithmetic scaling shows an equal distance for each unit on the scale.  Extreme values can be used to identify buy/sell days in conjunction with a trend indicator such as a 200 day moving average.

Chart showing overbought and oversold values of the TRIN indicator

More Information

Long term historical data for the NYSE, AMEX and NASDAQ can be found at Advances and Declines.  The web site provides advances, decliners, unchanged and associated volumes back to 1965.  The TRIN indicator must be calculated by the user.

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