Trading Index (TRIN) - Extreme Negative Reading
Extreme reading on the Trading Index (TRIN) today. The adjusted TRIN reading was -256, a level not seen since the end of February sell-off last year. You can read about the adjustments I make to the raw Trading Index values here.
The Emini didn't hold the 1,450 level discussed on Thursday. I entered a long trade in after-hours at 1,456. The trade immediately went in my favor, up 7 points, so I raised my stop to just under break-even. Then the jobs report came out and my stop got hit. Unbelievably I got positive slippage and ended up with a loss of only 0.75 points.
Emini and Extreme TRIN Reading
The chart above shows the extreme Trading Index (TRIN) reading of -256 and that the Better TRIN System is still holding a short trade from 1,490.
What's the best way to trade these extreme TRIN readings? I tested a simple system of going long the Emini at different TRIN levels. The entry is the next open after an extreme reading and then exiting 3 days later.
The chart below shows the Profit Factor at different TRIN levels, ranging from 0 to -300. We get a peak profitability around -220, but below that the system is unprofitable (profit factor < 1). So buying these extreme TRIN levels, expecting the market to bounce straight away, does not work consistently.
Buying Extreme TRIN Reading at Next Open
Instead of entering the market straight away, let's wait for some confirmation. The chart below shows the Profit Factor when we wait for a break above the prior day's high, after an extreme TRIN reading. Again the trade hold is 3 days.
In this case the shape is similar - a drop off in profitability below -180. But there is also a peak at -270 on the adjusted TRIN. In addition, I've excluded the results below -280 because there are only 2 trades (at -290 and -300) which are both profitable.
Buying Extreme TRIN Reading at Break Above High
Based on these back-tests, it is not a sure thing that we'll get a bounce in the Emini on Monday just because of the extreme selling and TRIN reading we saw on Friday. Best to wait for a break above the prior day's high. In the meantime, the Better TRIN system is still short. Good luck with your trading.
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