A Better TRIN Indicator

The TRIN (Trading Index), also known as the Arms Index, was developed by Richard Arms in 1967 and since then has become a well-known indicator used to measure market strength.

At the time, the idea was revolutionary. By combining two non-price variables in a very simple formula, the result was a single number that indicated whether market internals were bullish or bearish. Today, TRIN data is available for both the NASDAQ and NYSE markets.

The formula for the TRIN is as follows:

      TRIN =     (Advancing Issues / Declining Issues)
                     (Advancing Volume / Declining Volume)

Issues: The number of stocks rising or declining in price.
Volume: The total volume traded of rising or declining stocks.

A chart of the raw NYSE Trading Index (TRIN) data is shown below.

Trading Index (TRIN) Raw Data

End of Day TRIN (Trading Index) Raw Data

Problems with the TRIN (Trading Index)

However, as revolutionary as it may have been, there are some problems with the Trading Index:

Problem #1: The TRIN is not an intuitive value.

Values above 1 indicate that there is selling in the market. Values less than 1 point toward more buying activity. For greater clarity, a high number should mean that the market is advancing; a low number would indicate that the market is in decline.

Problem #2: The TRIN makes market data look unbalanced.

If stocks are bought and sold at equal rates, the TRIN value is 1. But after a day of heavy selling, the Trading Index could be as high as 3. Similarly, the Trading Index could dip to 0.3 after a day of heavy buying. When charted over time, the result is a graph with high spikes but shallow dips. See the chart above.

Problem #3: When averaged, TRIN data provides an inaccurate picture of the market.

Traditionally, traders average the Arms Index over 10 days. Any value under 0.8 represents an overbought market, while a value of over 1.2 indicates that the market is oversold. But because the data is lopsided to begin with, this average is a faulty calculation at best.

A Better TRIN (Trading Index) Indicator

It’s been 40 years since investors first began using the Trading Index as a market indicator. Can we do better? Yes! By making some simple mathematical adjustments in your charting software, the result is an adjusted TRIN value that is easier to interpret and more accurate when averaged. Here's what to do:

  • Step 1: Take the Log of the NYSE TRIN value.
  • Step 2: Invert this value so negative values are positive and vice versa.
  • Step 3: Multiply the inverted Log value by 100.
  • Step 4 (optional): Repeat the previous steps for the NASDAQ TRIN data and average the two values.

Interpreting the Adjusted TRIN (Trading Index)

If you have successfully followed the steps above, the adjusted TRIN data is easy to interpret at a glance and gives you a better idea of market trends when averaged.

  • Values range between -100 and +100, with 0 as the neutral point.
  • Positive values indicate buying and a market in an upswing.
  • Negative results indicate selling activity and downward moves in the market.
  • Values are balanced, requiring the same amount of buying or selling for the indicator to be +100 or -100 and, therefore, averages are accurate.

Better Trading Index TRIN Image

Better TRIN (Trading Index) Indicator with the Emini

The chart above shows what the improved TRIN (Trading Index) indicator looks like. Now, the Adjusted TRIN makes more sense to me!

Now we can start to do some really clever stuff with the improved TRIN. Check out the following article about TRIN divergence, the TRIN Oscillator and more.

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