UK Accounting Glossary
The TRIN indicator, also known as the Short Term Trading Index (Short-Term TRading INdex), is a daily market breadth indicator. The TRIN indicator was invented by Richard Arms in 1967 and thus the TRIN is also referred to as the ARMS Index.
It has also been known at various times as MKDS and STKS. The index uses a formula based on NYSE (or Nasdaq) stock market data including a number of advancing and declining issues as well as advancing and declining volume to identify short-term overbought and oversold market conditions.
Strong market advances are usually accompanied by relatively low TRIN readings because up volume significantly outweighs down volume to produce a relatively high AD Volume Ratio. This is why the TRIN appears to move with a negative correlation to the market. A strong up day in the market usually results in a lower TRIN. Conversely, a strong down day tends to result in a higher TRIN.
The TRIN indicator is volatile and is often smoothed using a moving average. Using a 10-period Simple Moving Average (SMA) generally provides relatively clear overbought/oversold signals. The TRIN should be used in conjunction with other indicators or filters. In particular, a trend indicator should be used to establish market long term trend while the TRIN is used to define entry/exit points.
The TRIN indicator can be displayed with a log scale or an arithmetic scale. Log scaling shows an equal distance for equal percentage movements. Arithmetic scaling shows an equal distance for each unit on the scale.
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This glossary post was last updated: 23rd March 2020.