---Tim Kruzel wrote:
Is there anyone out there who follows the TRIN indicator who could give a brief description regarding how to interpret it? Or indicate a place where one could read about it.
| Advancing Issues | | Down Volume |
TRIN = | ----------------------------- | x | -------------------------- |
| Declining Issues | | Up Volume |
Suppose one had a large TRIN value. This could come about in two ways.
- The Down/Up ratio stays around 1.0 but the Advance/Decline ratio is large. One might interpret this as bullish?
- The Advance/Decline ratio stays around 1.0 but the Down/Up ratio is large. One might interpret this as bearish?
It seems to me that TRIN obscures what is happening. Why not follow the two ratios separately? What am I missing?
Re: TRIN Interpretation
To: TKruzel@xxxxxxxxxxxxxxxx, MetaStock User Group <metastock-list@xxxxxxxxx>
Subject: Re: TRIN Interpretation
From: Chip Anderson <chipamy@xxxxxxxxx>
Date: Thu, 6 Nov 1997 15:03:21 -0800 (PST)
Resent-Date: Thu, 6 Nov 1997 17:05:46 -0700
I'm still learning about TRIN, but I did find several references to it and its interpretation which you may find helpful. A quick answer to your question can be found in #1 below - yes, people do follow the ratios seperately - as the "Advance/Decline Ratio" and the "Upside/Downside Ratio".
In a Barron's article last week, Martin Zweig seemed to favor the "contrary" interpretation found in #3 below - i.e., extreme TRIN values signal imminent turnarounds.
Hope this helps,
1. Technical Analysis from A to Z, Steven Achelis 1995 p.67
(Note: Steven Achelis is CEO of Equis)
"Arms Index Overview -
The Arms Index is a market indicator that shows the relationship between the number of stocks that increase or decrease in price (advancing/declining issues) and the volume associated with the stocks that increase or decrease in price (advancing/declining volume). It is calculated by dividing the Advance/Decline ratio by the Upside/Downside Ratio.
The Arms Index was developed by Richard W. Arms, Jr. in 1967. Over the years, the index has been referred to by a number of different names. When Barron's published the first article on the indicator in 1967, they called it the Short-Term Trading Index. It has also been known as TRIN (an acronym for TRading INdex), MKDS, and STKS.
The Arms Index is primarily as short-term trading tool. The Index shows whether volume is flowing into advancing or declining stocks. If more volume is associated with advancing stocks than declining stocks, the Arms Index will be less than 1.0; if more volume is associated with declining stocks, the Index will be greater than 1.0.
The Index is usually smoothed with a moving average. I suggest using a 4-day moving average for short-term analysis, a 21-day moving average for intermediate-term, and a 55-day moving average for longer-term analysis.
Normally, the Arms Index is considered bullish when it is below 1.0 and bearish when it is above 1.0. However, the Index seems to work most effectively as an overbought/oversold indicator. When the indicator drops to extremely overbought levels, it is foretelling a selling opportunity. When it rises to extremely oversold levels, a buying opportunity is approaching.
What constitutes an "extremely" overbought or oversold level depends on the length of the moving average used to smooth the indicator and on market conditions.
Moving Average Overbought Oversold
4-day 0.70 1.25
21-day 0.85 1.10
55-day 0.90 1.05"
2. Technical Analysis Explained, Martin Pring 1991 p.299
"The Arms (Trin) Index
This indicator is named after its innovative inventor, Richard Arms. It represents the relationship between advancing and declining issues, and the volume in advancing and declining stocks. The Arms Index is calculated by dividing the A/D ratio by the upside/downside volume ratio over a specific period. (Ten days is the normal time span, although tick-by-tick data is published intraday by several of the financial media as well as by the major quotation services.)
The Arms Index is used mostly as a short-term trading tool. The idea behind the indicator is to see whether volume is flowing into advancing or declining stocks. It differs from most other momentum indicators in that a falling Trin is bullish (because it shows that more volume is flowing into advancing stocks), and a rising one is negative. Although this inverse relationship should be kept in mind, the Arms Index should be interpreted in exactly the same way as any other breadth oscillator."
3. Stock Market Logic, Norman Fosback 1993 p.131
(Note: This book discusses the Short Term Trading Index which it defines as the inverse of the TRIN.)
"The Short Term Trading Index measures the concentration of volume in advancing and declining stocks. According to the most popular interpretation, if more volume is flowing into the average advancing stock than into the average declining stock, the situation is bullish for the market. Alternately, a preponderance of volume in declining
issues is bearish.
The calculation method shown below is slightly different from that used by most analysts, but readers should find it more understandable and easier to calculate.
Short Term Trading Index = (AV / A) / (DV / D)
AV = Volume of Advancing Stocks
DV = Volume of Declining Stocks
A = Number of Advancing Stocks
D = Number of Declining Stocks"
<Discussion of how to calculate index omitted>
"...(A more frequently used formula is: (A/D) / (AV/AD), called "MKDS" or "TRIN" on various stock quotation services. Readings below 1.0 are bullish and readings above 1.0 are bearish. The calculation method proposed above, however, is easier to grasp and intuitively more logical.)
The index has been variously applied to predictions of market changes as short as hourly and as long as several weeks. Although the index has many adherents, it has seldom been tested rigorously, and its true predictive ability is uncertain. The trading index has the general characteristic of fluctuating with market prices; that is, it gives bullish readings when the market is bullish and bearish readings when the market is declining. This characteristic is caused by the fact that volume is generally the dominant component in the index.
When prices are rising, a greater than proportionate amount of total market volume is usually predominant, and low index readings ensue. In essence, then, the trading index is a price following indicator: high index readings usually accompany rising markets, and since high index readings are bullish, further rising markets are predicted, which in turn should be accompanied by further high index readings and so on.
For market predictive purposes, the trading index can be analyzed in several ways. One is to note the changes in the index toward greater or lesser bullishness or greater or lesser bearishness; or from bearish to bullish or bullish to bearish. If the daily readings are averaged over a three to five day period to eliminate short term random fluctuations, shifts from bearishnes to bullishness (say, from below 0.85 to above 1.20) accompany the formation of intermediate term market troughs about 80% of the time. These buy signals are occasionally early, but are more often slightly late, averaging a lag of about two days from the actual market turning points. Sell signals, derived by a shift from bullishness to bearishness (say, by an index decline from above 1.20 to below 0.85), are also useful, though not quite as reliable as the buy indications.
A second technique is to treat the index as a contrary indicator. When it gets too bearish, a bullish market turnaround may be imminent, and vice versa.
Still another method of analysis takes into account the tendency of the index to fluctuate with the market. In essence, this technique relates trading index readings to accompanying market changes. A bullish reading would be derived when the trading index is greater than would normally be expected to accompany a given market change. By the same token, readings would be considered bearish when they are lower than would normally be expected to accompany a given market change. Using this technique, ostensibly favorable readings would be bearish if they are not high enough, and ostensibly unfavorable readings would be bullish if they are not too low.
Needless to say, most of these methods of analysis require a good deal of subjective judgement in establishing buy and sell signal criteria. Although there are doubtless additional interpretational methods which have not yet been formalized or studied rigorously, the index seems to have limited forecasting value. Ascertainment of its full worth must awalevit further, more comprehensive testing."
4. "The Arms Index", Bruce Faber, TA of Stocks & Commodities magazine (4/96)
(Basically a good 3-page rehash of the above information.)