The Arms Index (TRIN) was created by Richard Arms in the late 60s/early 70s. TRIN, which is short for (TR)ading (IN)dex is a technical indicator that measures the market strength and weakness in a specific stock.
The great thing about TRIN is it helps traders with short-term intraday day/swing trading and it measures the volatility in the stock, which can be extremely useful along with other indicators to find the perfect buy and sell levels. In simpler terms, the TRIN measures supply and demand and helps traders forecast if there is about to be a bullish or bearish period.
Here is what TRIN looks like on a 4 hour chart:
Most traders use the TRIN with a moving average to help make the indicator even more useful:
When the TRIN is performing at the 1.00 line it is a sign that the market is neutral.
There are many technical analysts that believe when the TRIN is below 1.0 it is a bullish sign. This is because there is greater volume in the average of all the stocks that are trending up versus trending down. Vice versa, when the value is above 1.0 it is believed to be a bearish signal. This is when the volume in the average stock that is trending down is greater than the average of the stocks trending up.
When the TRIN is performing at very high or very low levels it can be an indication that a reversal in the market is close by.
So, what does this even mean? How can you as a trader take advantage of the TRIN?
The first thing you have to understand is that the TRIN is inverted compared to most of our other indicators. So when the value is high its buy time and when the values are low its sell time.
A: At A there is a very high peak. Notice how the price is currently performing at a bearish period. Look what happens though as the TRIN tumbles downwards and reverses - the price goes up!
Check out how the TRIN could have been used on Tesla Inc(TSLA) from April to July in finding BUY and SELL opportunities:
As you can see from the image above there are multiple buy/sell signals indicated by the TRIN. On a stock as TSLA the price is quite high and it doesn’t fluctuate as much as a stock less than $10.00 may perform. Looking at the image you can see when the big bullish run happened the value of the TRIN seemed more bullish then bearish - that is because it followed the market a little closer thus making it more neutral. It would be up to the seller to know when to offload their shares but the TRIN can definitely be useful in helping predict those trends.
I hope you enjoyed this article on the TRIN. If you have any questions be sure to let us know!
As always, Good Luck & Happy Trading!