TRIN, ARMS and Open ARMS
ARMS Index Calculation (TRIN):
Advancing Issues / Declining Issues
Advancing Volume / Declining Volume
This calculation is often averaged as displayed in the above
chart showing the 4 and 10 day (moving average) ARMS Indexes.
The Arms Index is a market indicator that shows the relationship
between the number of stocks that increase or decrease in price
(advancing/declining issues) and the volume associated with
stocks that increase or decrease in price (advancing/declining
volume). It is calculated by dividing the Advance/Decline Ratio
by the Upside/Downside Ratio.
The Arms Index was developed by Richard Arms in 1967. Over the
years, the index has been referred to by a number of different
names. When Barron's published the first article on the
indicator in 1967, they called it the Short-term Trading Index.
It has also been known as TRIN (an acronym for TRading INdex),
MKDS, and STKS.
The Arms Index is primarily a short-term trading tool. The Index
shows whether volume is flowing into advancing or declining
stocks. If more volume is associated with advancing stocks than
declining stocks, the Arms Index will be less than 1.0; if more
volume is associated with declining stocks, the Index will be
greater than 1.0.
The Index is usually smoothed with a moving average. I suggest
using a 4-day moving average for short-term analysis, a 21-day
moving average for intermediate-term, and a 55-day moving
average for longer-term analysis.
Normally, the Arms Index is considered bullish when it is below
1.0 and bearish when it is above 1.0. However, the Index seems
to work most effectively as an overbought/oversold indicator.
When the indicator drops to extremely overbought levels, it is
foretelling a selling opportunity. When it rises to extremely
oversold levels, a buying opportunity is approaching.
What constitutes an "extremely" overbought or oversold level
depends on the length of the moving average used to smooth the
indicator and on market conditions. Table 5 shows typical
overbought and oversold levels.
Open ARMS Index Calculation:
10 Period Moving Average of Advancing
Issues / 10 Period Moving Average of Declining Issues
10 Period Moving Average of Advancing Volume / 10 Period Moving
Average of Declining Volume
The Open-10 TRIN is a smoothed variation of the Arms Index. It
is a market breadth indicator that uses advancing/declining
volume and advancing/declining issues to measure the strength of
The interpretation of Open-10 TRIN (also called the Open Trading
Index) is similar to the interpretation of the "normal" TRIN.
Readings above 0.90 are generally considered bearish and
readings below 0.90 are considered bullish.