The Arms Index (TRIN) is a short-term trading index that compares the advancing and declining stock ratio (AD Ration) to the advancing and declining stock volume (AD Volume). TRIN, developed in 1967 by Richard Arms has widely been used to gauge an overall market sentiment by focusing on the relationship between market supply and demand. With this analysis, TRIN predicts the future movement of market prices.
Features of Arms Index includes
• The bullish signal
• The bearish signal
How do you calculate the Arms Index?
Many applications offer the services of calculating TRIN, but for finer details, use the following steps.
1. Set your interval, which might be after 10 minutes, an hour, or a day and find the AD ratio by dividing the number of advancing stocks by the number of declining stocks.
2. Get the AD volume by dividing the number of advancing volumes by the number of declining volumes.
3. After getting both AD ratio and AD volume, divide the AD ratio by AD volume
4. Plot a graph with a different result at different intervals
What does the TRIN tell you?
TRIN is a breadth oscillator that gives a guideline in measuring the strength and weakness of an internal market. When you observe a TRIN pattern trending upward, it indicates that the market is getting weaker with time. Consequently, if the market is trending downwards, it indicates that the market is getting stronger.
Interpretation of Arms Index
• If Arms index is less than 1.0. It provides a bullish signal because there is a greater average volume stock going up than the average down. According to experts, a bullish signal is biased to the market.
• A bearish signal is generated with a reading of more than 1.0 since there is a greater volume down in the market than the average up stock.
• On the other side, if the Arms Index reads less than 0.5, it indicates an overbought market, and a reading of more than 3.0 indicating an oversold market.
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