orbacefx

I am using TRIN reading as a gauge of NYSE traders "sentiment" during the day: are they more willing to sell or more willing to buy? After all, the cash market for ES is in NYSE mostly. I usually focus on the absolute value reading, especially in the very first minute (9:31 AM, EST), but using a 5-min candle chart of TRIN overlaid with ES line chart would not hurt. Let's first review two extreme days. 2012 0906 Thursday (see attachment 1), the initial reading is 0.65; during the first 5 minutes, it ran between 0.38 to 0.85. the 0.40 reading is really a bullish reading, it means more buyers are bidding the price up. For this kind of scenario, I usually reluctant to go short ES, even I had a very good reason from my primary methodology - if I do, essentially I am fighting the tape, not only I would waste energy and have less potential in the short side, but also I would attempt to cut short of my long position prematurely. Every day is an unique day. Every day is an unique game. With the benefit of hindsight, it turns out 0906 is a classic one-way street north. Of course, before it reached to the end, we never know what is gonna happen until it happened. 2012 1019 Friday (see attachment 2), the initial reading is 1.80; then it shoot up to 2.80 before it receded a little. Even though ES in Globex is only off 3-4 points before NYSE open, but 2.80 reading really shed some lights about the rampage of sellers in the equity market. This might be qualified as what Linda Raschke called "urgent market" - just put our position ON, at least half, and wait further confirmation. Value is irrelevant in times of market stress - it is all about our positions. Because market is always right, it will trade against positions.

When Richard Arms introduced the TRIN (also called Arms Index) in 1967 through Barron's, it immediately got wide following by professional traders. The formula is quite simple yet a little bit intriguing - it is defined as a ratio of two ratios: TRIN = (Advancing Issues / Declining Issues) / (Advancing Volume / Declining Volume) Of course, initially the calculation was only done for all NYSE issues. As it started to gain popularity, other major stock exchanges started to report their own TRIN readings throughout the trading day. For this discussion, I am talking about the TRIN for NYSE only since most of S&P 500 stocks are trading in NYSE. Without closely watching the actual values of TRIN in conjunction with the market action, it is very hard to get an INTUITIVE feel of this index. Of course, you can find many introductory material in the web for a typical reading - TRIN is a market breadth indicator, it has an inverse correlation with market movement: when it is below 1, the market is bullish, when it is above 1, the market is bearish, etc, etc... Before I share my experience of using TRIN for ES intraday trading, I like to take an extra step to do a "zero" twist of this well-known index. Applying middle-school algebra, the TRIN can be expressed alternatively: TRIN = (Declining Volume / Declining Issues) / (Advancing Volume / Advancing Issues) or really it means: TRIN = Average Declining Volume / Average Advancing Volume WOW! Does that ring a bell? So intuitively, TRIN is not a typical breadth indicator, especially in an intraday basis. What it really try to measure is the TRADING FLOW - whether the average down volume is more dominant, or is the other way around. So in an extremely bearish day (gap down, one-way street throughout the day), TRIN can shoot up to 3-4, and stay at an elevated level. On the other hand, if it can hover below 0.5 in a big rally day. In a typical day when S&P 500 index can exhibit uneventful intraday reversal, TRIN would most likely hover around 0.8 to 1.25 range. More to come...