V.10:11 (449-453): A Twist On The Arms Index by Harley D. Wilbur

V.10:11 (449-453): A Twist On The Arms Index by Harley D. Wilbur
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A Twist On The Arms Index by Harley D. Wilbur

The Arms index, which was originally known as TRIN (for trading index), utilizes up and down volume and advancing and declining issues for calculation. The indicator, which aims to identify possible turning points in the stock market, has been studied keenly since its introduction. Here, Harley Wilbur presents a new version of this indicator, bruised and battered but still standing in the field of trading battle.

I have long been fascinated with the Arms index, also known as the TRIN indicator. I was introduced to it in the early 1970s when it had the unwieldy name of "shtort-term trading index" and could be accessed intraday on brokers' quote machines . As a buy/sell indicator the Arms index worked well sometimes but failed miserably at other times.

One of the problems I have encountered in using the index is that the daily TRIN can be very erratic. Because of the way the index is calculated, the value 1.00 is theoretically neutral, and values below 0.30 are relatively rare. On the high side, however, it sometimes spikes above 2.4 or higher. On the occasional days when the stock market drops swiftly, the index often assumes very large values, which in turn have a disproportionate influence on TRIN moving averages, making them erratic too. (Technician Arthur Merrill presented an interesting analysis of the significance of extreme daily values of the Arms index in the April 1992 STOCKS & COMMODITIES.)

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