What is the Arms Index?
As one of the more commonly used market indicators that is used in the process of technical analysis, an arms index takes into consideration several factors that result in helping to determine if issues are to be considered bullish or bearish. Sometimes referred to as a trading index, the arms index is relatively easy to calculate when the data is readily available. Here is the process for arriving at an accurate arms index. The process of factoring an arms index begins with assembling the data that is relevant to a particular set of issues. Basically, there are four pieces of information that are required to arrive at the arms index. First, the number of advancing issues is necessary to begin the formula. This figure is to be divided by the number of declining issues involved. Next, having the current detail on the total up volume for the issues, as well as the total down volume is required. Just as the first two components were divided into one another, so does the down volume divide
The Arms index, or the TRIN, measures the strength of market, not only in terms of the breadth of advancers to decliners but also takes into account the volume that is taking the market higher or lower. The indicator was developed by Richard Arms and was designed to show the trader whether or not the market was moving higher or lower with volume support or not. The lower the Trin, the greater the advancing volume in the market; a higher Trin indicates that there is more declining volume in the market. How to Use the Arms Index in Day Trading The most important item to note regarding the Arms index is that the trend of the arms is more important than any specific number that it prints. It is not advisable to fight the trend of the Arms index. If, at 1pm, you notice that the Arms index is making higher highs throughout the entire session, it is advisable to look for a good short entry. The opposite situation is true for a down trending Arms. One final note on the Arms is a very important
” Della. I’d be delighted to. First, the ARMS index is based on the TRIN. The TRIN is as follows: Advancing stocks in an index, divided by declining stocks in an index gives a number. This number is divided by a number that results from taking advancing volume and dividing it by declining volume. The result gives you a calculated number that is called the “TRIN.” If you average the TRIN over a trading week you get the ARMS index. If you need more clarification just ask. I just learned this stuff recently myself. Happy Easter to you and yours!
