Awesome Day Trading Strategies (85 lessons)
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How to Day Trade Using the ARMS Index

Arms Index is a volume based technical indicator used by technical analysts for forecasting price. The indicator is a useful tool designed to trade stocks. The Arms Index was developed by Richard Arms in the 1960’s but it also commonly referred to as the TRIN, which stands for Trading Index.

The TRIN or Arms index determines the strength of the market by taking into account the relationship between the advance and decline indicator and the respective volume. The Arms index simply measures the intraday strength of the market and is ideally used for the short term markets, thus making the Arms index or TRIN as a perfect tool to day trade stocks more than any other market.

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Stock market day traders have been using the Arms index or TRIN to trade the broader market as well as trading individual stocks based on the signals from the Arms index. In theory the principle being that when there is broad stock market strength, most stocks also move in the same direction.

In this article, you will learn about the Arms Index or the TRIN indicator and how you can day trade stocks using the Arms index.

What is the Arms Index (TRIN)?

The Arms Index or TRIN is a technical analysis tool. It compares the advancing and declining stocks and compares their respective volumes. This helps traders to identify the overall sentiment in the markets.

The Arms Index achieves this by comparing the relationship between the supply and demand. In the short term, such as day trading the Arms Index is ideal to predict the future price movements of the stock thus making it a valuable tool among stock market day traders

The Arms index doesn’t just show the overall market sentiment. The indicator can also offer dynamic views of the overall movements in the values of the stock exchanges as well, such as the NYSE and the NASDAQ exchanges for example. This is achieved by comparing the strength and breadth of the market movements in the respective exchanges.

For all the complexity involved, the Arms Index or the TRIN indicator is very simple. This technical analysis indicator fluctuates around the zero-line with a value of 1.0. Depending on where the TRIN indicator is relative to the zero-line, the market can be viewed as being either overbought or oversold.

In a way, the TRIN indicator or the Arms index works similar to just about any oscillator that moves around fixed values and signals the overbought and oversold conditions.

One of the most important aspect of the TRIN indicator or the Arms index is that it not only shows how many stocks are advancing and declining but also supports this data by showing the respective volume which brings additional confidence to the signals.

When the broader market strength or weakness is supported by the respective volume, it can offer some deep insights into the markets for the day trader.

Below is an example of the TRIN indicator or the Arms index applied to the daily chart for AAPL.

Arms Index or TRIN Indicator on AAPL Chart

Arms Index or TRIN Indicator on AAPL Chart

The TRIN indicator is available in two formats. The TRIN shows data on the NYSE exchange, whereas the TRINQ shows data on the NASDAQ exchange. However, this can change depending on the charting platform a trader uses.

Therefore, when you trade stocks listed on the NYSE, it is ideal to use the TRIN indicator while TRINQ is more helpful when you want to trade stocks listed on the NASDAQ exchange.

The next chart below shows the TRINQ applied to the Nasdaq 100 index to get a better idea on the indicator and its application to the stock chart.

TRINQ and NDX chart

TRINQ and NDX chart

How to calculate the Arms Index (TRIN)?

While it is not important to know the intricate details on how the TRIN index is formed, it is important that a trader knows the basic workings of the indicator so they can better apply it to their trading.

There are four major variables that are crucial for the TRIN indicator and its values to be calculated. There are:

  1. Advancing issues: This is the indicator that shows the number of stocks (in the exchange) that closed higher on the day
  2. Declining issues: This indicator shows the number of stocks (in the exchange) that closed lower on the day.
  3. Advancing volume: This shows the summed up volume of all stocks (in the exchange) that closed higher on the day. Or simply put, the sum of volume of all advancing issues
  4. Declining volume: This shows the summed up volume of all stocks (in the exchange) that closed lower on the day. Or simply put, the sum of volume of all declining issues

The above four parameters are readily available from the exchange and provides adequate data by itself.

Once we have the above values, the TRIN or the Arms Index calculation is very simple.


Another way to put the above calculation is simply by dividing the AD Ratio (Advance/Decline Ratio) by the AD Volume Ratio.

How to read the data from TRIN or Arms Index?

So far we learned that the TRIN indicator or the Arms index is a ratio of the advancing issues and declining issues alongside considering the volumes supporting them. Visually, the Arms index oscillates around the value of 1.0 or the zero-line or the neutral point.

The TRIN or Arms index moves opposite to the advance and declining issues.

When there is a strong up day in the markets (advancing issues are higher than declining issues), the TRIN index falls below 1.0. Likewise, when there is a strong down day in the markets (declining issues are more than advancing issues), the TRIN or Arms index moves above 1.0

There are also times when there are extreme readings on the Arms index or the TRIN. When this happens, the Arms index signals that sentiment in the market is extremely bullish or extremely bearish and indicates that a reversal or a reversion to the mean is on the cards.

Once the TRIN signals these extreme positions, traders can wait for price confirmation and act accordingly.

While the TRIN or the Arms index has a neutral point of 1.0, the extreme values can vary from one exchange to another. Ideally, the extreme values are read as 2.0 which usually signal that the market has formed a short term bottom.

Day trading with the Arms Index (TRIN)

Based on the above information, let’s look at how the TRIN can be used to signal turning points in the markets.

The chart you see below is marked with the key turning points in the market. Here the value of 1.75 is selected.

Arms index (TRIN Indicator) shows turning points in prices

Arms index (TRIN Indicator) shows turning points in prices

From the above example we can see a lot of observations.

For starters, when the Arms index is above 1.0 (the neutral point) but below 2.0 it signals that stocks are under pressure and that a short term decline is on the cards. This is the time when day traders need to exit their long positions if any, or short sell the stock in question.

Similarly, when the Arms index is below 1.0 it signals buying pressure in the markets and thus, day traders can expect to see a short term reversal in the prices. In such circumstances, short positions are not recommended.

While the TRIN is a good indicator by itself, traders should always use the information in the context of the market trend. Thus, using moving averages or other trend indicators are a great way to trade with the TRIN or the Arms index.

In the above chart there are three instances highlighted where the TRIN signaled a short term correction in prices. On the price chart, the sessions or candlesticks marked by the Red arrow indicate the price action which signals the upside move in prices.

In the first instance, we had a morning star type of candlestick pattern. In the second instance, we had a harami type of candlestick pattern with support taken from the 50 and 200 periods EMA. In the final scenario we had a bullish reversal candlestick pattern after the TRIN indicated a decline.

What’s common to all the above three examples is a three step process.

  1. TRIN signals a correction and price falls accordingly
  2. Price confirms a reversal (which could also be validated by the respective volume of the security being analyzed)
  3. The previous high is breached, signaling a continuation

It is up to the day trader on how they wish to trade thereafter. For starters, day traders can look at exiting after a fixed take profit level, or in some cases depending on the trend, one can continue to add to the positions.

Detecting extreme readings in the Arms Index

One of the drawbacks of the TRIN or the Arms index is that the turning points are not exact. Therefore, instead of focusing on the exact turning point in prices, traders should look at entering the trade when there are a few more validations to the bias.

Sometimes, the Arms Index can also post extreme readings. The next chart below shows the AAPL stock chart with the TRIN index.

Extreme readings in TRIN coincide with sharp reversal in prices

Extreme readings in TRIN coincide with sharp reversal in prices

Here you can see in the first instance where the Arms Index posted an extreme reading above 1.75 and below 0.5. These extreme readings usually coincide with sharp reversal in prices.

Trading break outs with the Arms Index

The Arms index can also be used to trade break outs with a reasonable about of consistency. In this day trading strategy, traders can use the Arms Index alongside the Bollinger bands which is a good indicator to measure volatility in prices.

The chart below shows the Arms index with the Bollinger bands. Because the bands are a good measure of volatility, the turning points can be used to position the trader ahead of the volatile breakout, especially during the Bollinger band squeeze which represents a contraction in prices.

TRIN Indicator with Bollinger bands

TRIN Indicator with Bollinger bands

Traders can use this strategy to take profits for a certain risk/reward set up or use the method to trade into the trend and build a long term position in the markets based off the short term signals given by the TRIN indicator.

Is the Arms Index a good indicator for day trading?

The answer to this depends on how well a trader is familiarized using the Arms index or the TRIN indicator. There are many different ways to day trade with the Arms index than just the methods shown in the above examples.

For one, traders can use the oversold and overbought levels as a confirmation to enter into a trade based on the analysis of their own trading strategy. Here, the TRIN can be a helpful tool to validate these turning points in prices without interfering in one’s existing trading strategy.

Another way is to look for the extreme readings in the indicator. Depending on the stock or the security in question, an extreme reading can typically signal a strong price movement that day traders are alerted to ahead of time.

The TRIN indicator is also ideal for trend traders. Although this would mean that traders need to keep an eye on the long term charts as well as the short term charts in order to pick the intraday or the short term reversals indicated by the Arms index.

One of the important aspects of using the Arms index is that it only signals the turning points in prices with some degree of accuracy. This doesn’t mean that traders can throw caution to the air. Another aspect is that traders need to come up with their own methods of when and where to take profits on the trades.

Remember that prices can continue to post reversals when moving within a trend. Therefore, day traders should not mistake this to be a change of trend but rather the price corrections within a trend.

In conclusion, the TRIN indicator or the Arms Index is a versatile indicator used to pin point with a high degree of precision on the turning point in prices. The only thing being that the Arms Index is limited to the stock market and the trading exchanges in question, which puts this indicator ideally useful for stock day traders.

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