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Trading Index (TRIN): Formula, Calculation & Strategy in Python

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The arms index or trading index (TRIN) is a technical indicator – with a thorough knowledge of which, you can mitigate some unwanted events. This comprehensive guide talks all about it.

This article covers:

  • What is the arms index or TRIN?
  • Formula of TRIN
  • How to read data from arms index or TRIN?
  • Example of TRIN
  • Calculation of TRIN in Python
  • TRIN strategy with bollinger bands
  • Pros & cons of TRIN

What is the Arms Index or TRIN?

Arms Index, which is also known as the Trading Index (TRIN) is a technical analysis indicator. This technical indicator helps measure the strength of the internal market. TRIN compares the number of advancing and declining stocks to the advancing and declining volume. We will discuss the ratio of TRIN properly later in the article. Richard W. Arms, Jr. invented the TRIN index in 1967, and it is used for measuring the relationship between market supply and demand. Hence, the TRIN index is successfully used to find out the market sentiment. Moreover, future price movements are indicated by TRIN since it generates overbought and oversold levels to find out when the price index may change direction.

Formula of TRIN

TRIN or arms index is a short-term tool for indicating the trading situation of the stock market. Based on the value of TRIN, a trader can find out if there is an upward or downward trend in the market. Based on the predicted direction, the trader can take decisions.

We will take a look at the formula and discuss how we can do that.

TRIN = Advancing stocks/Declining stocks Advancing volume/Declining volume

Here:

Advancing stocks = Number of stocks that are traded higher on the day

Declining stocks = Number of stocks that are traded lower on the day

Advancing volume =  Total volume of all advancing stocks

Declining volume =  Total volume of all declining stocks

The formula shows that TRIN discusses the relationship between the advancing and declining stocks by measuring their quantity and volume.

A rising TRIN value simply indicates a weak market with a bearish trend, whereas a falling TRIN indicates a strong market or a bullish trend.

Moving forward, we will find out the method to read the data from the arms index or TRIN for bringing it into practical use.

How to Read Data From Arms Index or TRIN?

To read the data from the arms index or TRIN, you simply need to find out if the TRIN index is above 1.0 or below 1.0. Hence, there are two cases:

  • In case of a strong upward trend in the market, or in case of a bullish market, the TRIN will be below 1.0.
  • On the contrary, in case of a strong downtrend or a bearish market, TRIN will appear to be above 1.0.

Apart from the mentioned two levels, there are also some cases where there are high readings on the index. These high readings are the extreme levels which are usually an indicator of a reversal to happen soon.

For instance, if TRIN shows the reading 2.0 or 3.0, it is an extreme value, which is an indicator that the market has formed a short term bottom. Similarly, if the value becomes 0.5, it indicates an uptrend in the market for only a short while.

So it is advised that the trader waits for a price to be confirmed. Once the price is confirmed, the trader can act on it accordingly so that there is no unexpected loss.

That is all on reading the data from TRIN so that you know how to act on the reading. Let us now take a look at the example of TRIN.

Visit QuantInsti Blog to watch an informative video about TRIN: https://blog.quantinsti.com/trin/.

In the next installment, the author will demonstrate an example of TRIN.

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