TRIN is also called the Arms Index. This is a breadth indicator to measure market strength or weakness. The Arms Index was developed by Richard Arms on 1967. This is also known as TRIN OR TRader’s INdex. TRIN is calculated using advance decline alongwith volume. It can be easily applied to indices like Nifty. Find below Nifty TRIN chart (10-day SMA of Nifty TRIN plotted with Nifty index in same pane).
Nifty TRIN Chart With 10 Day SMA
Chart courtesy: ICharts
How To Calculate TRIN?
1) Advance Decline Ratio = Advances / Declines
2) AD Volume Ratio = Up Volume / Down Volume
3) TRIN or Arms Index = Advance-Decline Ratio / AD Volume Ratio
How To Interprete TRIN?
1) TRIN is below 1 when AD Volume Ratio is greater than AD Ratio = Strength
2) TRIN is above 1 when AD Ratio is greater than AD Volume Ratio = Weakness
So, TRIN helps us to identify conditions where the market is short-term overbought or oversold.
On a single day basis: 1) A number of 1 is neutral 2) A number less than 1 indicates overbought 3) A number greater than 1 indicates oversold.
On a 5 day basis: 1) A number of 5 is neutral 2) A number less than 4.5 indicates overbought 3) A number greater than 6 indicates oversold.
On a 10 day basis: 1) A number of 10 is neutral 2) A number less than 9 indicates overbought 3) A number greater than 12 indicates oversold.
How To Use 10-day SMA With TRIN?
1) 10-day SMA of TRIN is used with TRIN to smooth the data.
2) 10-day SMA of TRIN surging above 3 is oversold.
3) 10-day SMA of TRIN dipping below 0.5 is overbought.
The chart above plots Nifty TRIN chart. Its actually Nifty index 10-day SMA of TRIN chart. The 10-day SMA of TRIN is plotted with the Nifty index in same graph. You can easily understand the overbought and oversold levels easily as per the above mentioned logics. The chart will be updated end of day.