Introduction to TRIN Indicator or Trader’s Index / Arm’s Index

TRIN Index Indicator

Embarking on the journey of day trading demands a keen understanding of market indicators. Among the arsenal of tools at a trader’s disposal, the TRIN (Trader’s Index or Arm’s Index) stands out as a beacon of insight. Crafted by Dick Arms, the TRIN indicator offers a nuanced perspective. It juxtaposes the ebb and flow of advancing and declining stocks against their corresponding volume. In essence, it serves as a litmus test, gauging whether the market’s breadth aligns harmoniously with its depth. As we delve into its intricacies, we uncover not just a mere metric. Rather, it is a dynamic signal generator. It is capable of heralding potential market reversals and offering strategic cues for nimble trading manoeuvres. Join us as we dissect the TRIN’s nuances, exploring its application in navigating the tumultuous seas of day trading with precision and foresight.

The Formula of the TRIN Indicator or Trader’s Index or Arm’s Index

Dick Arms developed the TRIN (Trader’s Index) indicator. So what is the formula of TRIN?

TRIN Formula

Basically, the TRIN or Arm’s Index tells us whether, in the Nifty index, the number of stocks advancing or declining are getting their proportionate share of the day’s volume. In other words, are advancing stocks or declining stocks receiving their fair share of the overall volume? A TRIN reading above 1.00 signifies that, on a disproportionate basis, more money is flowing into declining stocks than advancing stocks. A TRIN reading of less than 1.00 shows us a market day where a disproportionate amount of the volume is flowing into advancing stocks.

The Usage of TRIN or Trader’s Index

So, how to day-trade with the TRIN indicator? Extreme values in the Trin, typically precede a market reversal. High values signal a short-term bottom and low values are a short-term top. Even some Forex Gurus state that extreme values in the Trin signal a market reversal roughly 90% of the time.

The most important item to note regarding the TRIN is the trend of the TRIN. It is more important than any specific number that it prints. It is not advisable to fight the trend of the TRIN. If, at 1 PM, you notice that the TRIN is rising throughout the entire session, it is advisable to look for a good short entry. The opposite situation is true for a down-trending TRIN.

One final note on the TRIN is a very important one. When the TRIN reaches extremes on a closing basis, it indicates a counter move on the opening of the following day’s trading session. An Arms figure of greater than 2.0 on a closing basis gives the market a 90% chance to open higher the following session. Conversely, a closing Arms of 0.5 or lower indicates that the market has most likely put in a short-term top and will move lower on the opening of the next trading day.

For you all, I have attached a chart of the 10-day simple moving average of TRIN on our website. From time to time, you can come to this page to see changes in the TRIN values and can make buy or sell decisions accordingly.

Trader's Index Chart

How to Interpret TRIN Indicator

One of the market timing indicators which has proven successful over the years is the TRIN. The TRIN, formally known as the ARM’s Index (it was created by Richard Arms), measures advancing and declining issues along with their volume. Readings above 1.0 tell you the market is oversold. Readings below 1.0 tell you the market is potentially overbought.

Larry Connors’ Way to Trade the Trader’s Index / Arm’s Index

One of the very few quantified ways to use the TRIN was created by master trader Larry Connors. And it still holds today. The rules state that if the Nifty is trading above its 200-day moving average, and the TRIN closes above 1.0 multiple days in a row (the higher the TRIN the better and the more days above 1.0 the better), there have historically been healthy edges to the upside on the market over the next few days. Sometimes TRIN can even trigger a buy signal even if the index is below its 200-day SMA.

Nifty TRIN Chart

Follow the TRIN, especially when the market is above the 200-day moving average. It’s historically done a good job of telling you when prices are going to move higher. Our TRIN chart shows the TRIN staying above 1 March 2023 in a row. Nifty has started a fresh up-move from that zone.

Conclusion

In conclusion, the TRIN emerges as a stalwart companion in the realm of day and swing trading. This offers a nuanced understanding of market dynamics that transcends mere numbers. With its roots in the insightful work of Dick Arms and bolstered by strategies endorsed by seasoned traders like Larry Connors, the TRIN stands as a beacon of foresight amidst the ever-shifting tides of market sentiment. As we navigate the labyrinth of intraday trading, it becomes increasingly evident that the TRIN isn’t just a tool. Rather, it’s a guiding principle, steering us towards profitable opportunities and cautioning us against potential pitfalls. So, as we bid adieu, let us heed the wisdom of the TRIN. Let’s also harness its power to navigate the markets with confidence and clarity. It will ensure that our trading endeavours are not just successful, but truly transformative.

Visited 135 times, 1 visit(s) today

Author: Indrajit Mukherjee

Indrajit is a professional blogger and trading system developer. Amibroker expert, Wordpress expert, SEO expert and stock market analyst.Trading since 2002, he has started the journey of StockManiacs.net on 2008. He follows Indian and world stock markets closely.

0 0 votes
Article Rating
Subscribe
Notify of
guest

This site uses Akismet to reduce spam. Learn how your comment data is processed.

1 Comment
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Jaggu

Best information thanks for sharing with us

1
0
Would love your thoughts, please comment.x
()
x