We also know TRIN as the Arms Index. This is a breadth indicator to measure market strength or weakness. The Arms Index was developed by Richard Arms on 1967. Traders also call it as TRIN OR TRader’s INdex. TRIN is calculated using advance decline along with volume. We can easily apply this indicator to indices like Nifty. Find below the Nifty TRIN chart (10-day SMA of Nifty TRIN plotted with Nifty index in the 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.
And 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 Nifty TRIN Chart?
1) We use the 10-day SMA of TRIN with TRIN to smooth the data.
2) We read the 10-day SMA of TRIN surging above 3 as oversold.
3) And we read that 10-day SMA of TRIN dipping below 0.5 as overbought.
The chart above plots the Nifty TRIN chart. It’s actually the Nifty index 10-day SMA of the TRIN chart. We plot the 10-day SMA of TRIN with the Nifty index in the same graph. You can easily understand the overbought and oversold levels easily as per the above-mentioned logic. The chart will be updated end of day.