Tuesday, July 24, 2007

TRIN:Meaning,Description,Intepretation & Calculation

TRIN
Is short form for TRaders INdex. A technical analysis indicator calculated by taking the advances-to-declines spread and dividing that by the volume of advances to declines.

Founder of the TRIN
Richard W Arms, Jr., is a financial consultant to institutional investors and a private portfolio manager based in Albuquerque, New Mexico.

He is a noted expert in the field of technical and market analysis, the 1995 winner of the prestigious Market Technicians Award and the author of several best selling books and articles on his ground breaking theories in volume analysis and market forecasting.

This key technical tool for understanding market price movement is listed daily in the Wall Street Journal and is flashed once a minute on CNBC.

Richard Arms' revolutionary theories have changed the way investors perceive the market. His expertise in the field of technical analysis has had significant impact, evidence of this fact is his Equivolume charting system is now part of the most popular stock and futures software, and his Arms Index - also known as the Short-Term Trading Index or TRIN - has become one of the most important technical tools of Wall Street.

Description
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.A 4-day moving average is used 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.

Strictly defined, TRIN measures the ratio of advancing stocks to declining stocks and compares it to the ratio of advancing volume to declining volume.

When advancing volume exhibits discordance with the raw number of advancing stocks, the all-important signal is given. Conversely, when volume on the downside increases out of proportion with the number of declining stocks, an upside reversal is said to be imminent.

Interpreting TRIN
In a neutral market, TRIN will exhibit values within the range of 0.75 to 0.85, and its value typically remains below 1.0, which means the volume of advancing stocks exceeds the volume of declining stocks. This is considered typical because market participants are normally more bullish than bearish.

A high TRIN shows that bears are overoptimistic and that the market is nearing a bottom.
A low TRIN shows the opposite,the bulls are overoptimistic,the rally is unjustified and a market top is near.

But the situation is complicated somewhat because TRIN is handled differently in each of the different market conditions. Both overbought and oversold lines must be plotted at particular levels depending on the nature of the market.

For example,
In a bull market, 0.1--0.80 overbought& 0.80--1.++ oversold
In a bear market, 0.1--0.70 overbought& 0.70--1.++ oversold

the only time a value greater than 1.0 is used is in an oversold condition in a raging bull market.

Calculation
The Arms Index is calculated by first dividing the number of stocks that advanced in price by the number of stocks that declined in price to determine the Advance/Decline Ratio. Next, the volume of advancing stocks is divided by the volume of declining stocks to determine the Upside/Downside Ratio. Finally, the Advance/Decline Ratio is divided by the Upside/Downside Ratio.

to Calculate in MS Excel:.

Column values to enter formulas U have to enter

A = Company Name
B = Open
C = High
D = Low
E = LTP
F = prev
G = trd qty
H = Turnover
I = Adv stks..=IF((F2less thanE2),1,0)...u have to enter formulae in I column 2nd row and copy it till 51st row
J = Decl.stks..=IF((F2greater thanE2),1,0)...u have to enter formulae in J column 2nd row and copy it till 51st row
K = Total Adv Stks..=SUM(I2:I51)...u have to enter formula in K column 51st row
L = Total Dec Stks..=SUM(J2:J51)...u have to enter formula in L column 51st row
M = Adv Volumes..=IF(F2less thanE2,G2,0)...u have to enter formulae in M column 2nd row and copy it till 51st row

N = Decl.Volumes..=IF(F2greater thanE2,G2,0)...u have to enter formulae in N column 2nd row and copy it till 51st row
O = Total Adv.Volumes..=SUM(M2:M51)...u have to enter formula in O column 51st row
P = Total Decl.Volumes..=SUM(N2:N51)...u have to enter formula in P column 51st row
Q = Trin/The Arms Index..=(K51/L51)/(O51/P51)...u have to enter formula in Q column 51st row
R = Total Nifty Volumes..=SUM(G2:G51)...u have to enter formula in R column 51st row

pls change "greater than" and "less than" words with symbols "
>< ".















TRIN is for NIFTY 50 Stocks ONLY and not for ALL stocks.
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