Developed by Richard Arms in 1989, the Arms Index, also called the TRIN (TRaders’ INdex) is designed to detect overbought and oversold levels in the markets. The indicator looks at the number of advancing stocks versus declining stocks combined with how much volume is flowing into these stocks.
Using the Trin
This is a contrarian indicator, meaning it has an inverse relationship with the market. A ratio of 1 means the market is at parity, above 1 indicates more volume is flowing into declining stocks, and below 1 indicates more volume is flowing into advancing stocks.
Used in conjunction with the AD Line, Market Breadth, and NYSE Tick the TRIN ratio can be used as an intraday indicator to confirm or deny the changing market trend. It can also be looked at from a daily perspective, when applying a10-Day Moving Average Arms considers a decline below .8 overbought and a move above 1.2 oversold.