The TRIN (Trader's Index) indicator was developed by Dick Arms and is defined as (No. Of Advanceing Stocks/ No. Of Declining Stocks) / (Advancing Volume/ Declining Volume).
TRIN tells us whether in Nifty index the number of stocks advancing or declining are getting their proportionate share of the day’s volume. In other words, are advancing stocks or declining stocks receiving their fair share of the overall volume? A TRIN reading above 1.00 signifies that, on a disproportionate basis, more money is flowing into declining stocks than advancing stocks. A TRIN reading of less than 1.00 shows us a market day where a disproportionate amount of the volume is flowing into advancing stocks.
Extreme values in the Trin, typically precedes a market reversal. High values signal a short-term bottom and low values a short-term top. Even some Forex Gurus state that extreme values in the Trin signal a market reversal roughly 90% of the time.
The most important item to note regarding the TRIN is that the trend of the TRIN is more important than any specific number that it prints. It is not advisable to fight the trend of the TRIN.
If, at 1:30 pm, one notice that the TRIN is rising throughout the entire session, it is advisable to look for a good short entry. The opposite situation is true for a down trending TRIN.
When the TRIN reaches extremes on a closing basis, it indicates a counter move on the opening of the following days trading session. An Arms figure of greater than 2.0 on a closing basis gives the market a 90% chance to open higher the following session. Conversely, a closing Arms of 0.5 or lower indicates that the market has most likely put in a short-term top and will move lower on the opening of the next trading day.
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