TRIN (Arms Index)

The Arms Index, also known as the TRIN (Short-Term Trading Index), is a technical analysis indicator used to assess market breadth and investor sentiment. Developed by Richard W. Arms Jr., the Arms Index helps gauge the relationship between advancing and declining stocks and trading volume in the market.

Calculation:

The Arms Index is calculated using the following formula:

TRIN = (Number of advancing stocks / Number of declining stocks) / (Volume of advancing stocks / Volume of declining stocks)

Interpretation of the Arms Index (TRIN):

Values above 1:

A TRIN value above 1 suggests that the volume of declining stocks is outpacing the volume of advancing stocks. This indicates bearish sentiment in the market, with more selling pressure and potential selling climax.

Values below 1:

A TRIN value below 1 indicates that the volume of advancing stocks is higher than the volume of declining stocks. This suggests bullish sentiment, with more buying pressure and potential buying climax.

Extreme values:

Extreme TRIN values (significantly above or below 1) may suggest overbought or oversold conditions in the market, indicating potential reversals or corrections.

Trend confirmation:

Traders often use the Arms Index to confirm the prevailing market trend. In an uptrend, a consistently low TRIN reading (below 1) may indicate strong buying pressure and support the bullish trend. Conversely, in a downtrend, a consistently high TRIN reading (above 1) may suggest strong selling pressure and support the bearish trend.

Let’s see an example,

The above chart is the daily Candlestick chart of Nifty500 from 1^st Jan 2023 to 13^th Jun 2023. Below which is the TRIN (Arms Index) in green line with a horizontal dotted line at the value 1.