Technical Analysis and Proprietary Indicators
About using Breadth technical indicators to analyze stock market sentiment. TRIN arms index belong to the group of Breadth indicators indicators based on the Advance-Decline data and could be used with indexes, exchanges, portfolios or only basket of stocks. The TRIN was developed as a contrarian also known in technical analysis as inverse indicator indicator with the intent of pinpointing the critical levels at which a market becomes overbought or oversold.
The TRIN indicator may be applied to any index or basket of stocks. Technical analysis based on the TRIN indicator have evolved over the years. Richard Arms original concept was to use the TRIN as an indicator for detecting critical market levels. He assumed that a market was overbought when the day moving average of the TRIN declined below 0. Conversely, he considered a market oversold when this moving average rose above 1. The TRIN indicator oscillates around 1 one and readings greater than 1 are considered bearish while readings between 0 zero and 1 one are considered bullish.
This finance -related article is a stub. High readings, above 1, show relative weakness in the AD Volume Ratio. In general, strong market advances are accompanied by relatively low TRIN readings because up-volume overwhelms down-volume to produce a relative high AD Volume Ratio. A strong up day in the market usually pushes the Arms Index lower, while a strong down day often pushes the Arms Index higher.
As you can see in the calculation above and in the corresponding chart below, the AD Volume Ratio surged to 7. This produced a TRIN value well below 1.
Similarly, strong declines are usually accompanied by relatively high TRIN readings because down-volume swamps up-volume. In the example above, the AD Volume Ratio plunged to.
This produced a TRIN value well above 1 3. The Arms Index can be displayed with a semi-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. On a log scale, a move from. This is reflected with the dotted blue lines on the chart below. On an arithmetic scale, a move from.