Arms Index – Stock Trading Indicator
Arms index is a popular stock trading indicator developed by Richard Arms in 1967. It is also known as TRIN (TRading INdex). It can be used for finding both short-term and long-term trends for stocks and also can be used for finding oversold and overbrought conditions. Arms index is a volume based trading indicator, defined by the formula,
The resulting value is them smoothed by applying simple moving average, of which length differ according to trading style. Usually short-term traders use 4 day moving average, mid-term traders 21 day moving average and long-term traders 55 day moving average. The oversold and overbought positions differ with number of days of moving average.
When Arms index is on 1.0, the market is considered as neutral with equilibrium in buying and selling trends. When the value drops from 1.0 the market is considered bullish and when it is above 1.0, is considered as bearish. Usually the stock is considered overbrought if Arms index value is 0.70 for 4 day, 0.85 for 21 day and 0.90 for 55 day moving averages. And stock is considered oversold if Arms index value is 1.25 for 4 day, 1.10 for 21 day and 1.05 for 55 day moving averages. Arms index offers better results when is used in conjunction with other market indicators, especially price/volume indicators.
| Arms Index | = | (Number of Advances/Number of Declines) (Advancing Volume/Declining Volume) |
The resulting value is them smoothed by applying simple moving average, of which length differ according to trading style. Usually short-term traders use 4 day moving average, mid-term traders 21 day moving average and long-term traders 55 day moving average. The oversold and overbought positions differ with number of days of moving average.
When Arms index is on 1.0, the market is considered as neutral with equilibrium in buying and selling trends. When the value drops from 1.0 the market is considered bullish and when it is above 1.0, is considered as bearish. Usually the stock is considered overbrought if Arms index value is 0.70 for 4 day, 0.85 for 21 day and 0.90 for 55 day moving averages. And stock is considered oversold if Arms index value is 1.25 for 4 day, 1.10 for 21 day and 1.05 for 55 day moving averages. Arms index offers better results when is used in conjunction with other market indicators, especially price/volume indicators.
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posted by Daniel Pipitone at
4:03 AM
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