V.9:4 (145-147): Using The Arms Index In Intraday Applications by Richard W. Arms Jr.

Using The Arms Index In Intraday Applications by Richard W. Arms Jr.

A few weeks ago, I received a call from an analyst who had read a number of my recent articles in STOCKS & COMMODITIES and had an interesting question. "I've developed a new index to measure the market and want to know how I can have it named after me," he said. My somewhat facetious advice was, "All you need to do is wait about a quarter century, have a lot of luck and have some very good friends!"

I wish I could have been more helpful to the gentleman, but there really was no better answer. He was referring, of course, to the fact that the index that I invented in 1967 is now known as the Arms Index. But it wasn't always that way. It was first called TRIN, short for Trader's Index, because that was the symbol for it on one of the quotation services. Only after many years and a good deal of effort has the index's name changed. This was done primarily through the efforts of a great number of highly respected technicians who thought that credit should be given to the developer of a technique. The change was gradual, until it is now carried on most electronic systems, both national TV news networks, most advisory letters and many business publications as "ARMS"

DEFINING AN INDEX What is this index, and why hasn't it fallen by the wayside as another indicator that became too popular and thereby destroyed itself? It is just a very simple calculation that tells us whether the up stocks or the down stocks are getting more than their share of the volume. The index is based on the assumption that volume tends to swing in the direction of market sentiment. If we are in a bullish atmosphere, volume will tend to be proportionately higher in the stocks that are going up. If the bears are in control, the volume will tend to be proportionately heavier in those stocks that are declining. ...