Bob Brinker's Marketimer

  Wednesday September 26, 2018

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Investors are always trying to gauge the future course of the market in order to make timely investment decisions.

A method that uses volume in an attempt to predict future upswings or downswings is the Short-Term Trading Index or TRIN. The Short-Term Trading Index measures the volume of trading on advancing issues vs. the volume of trading on declining issues.

If the volume of trading on the average declining stock issue is greater than the volume of trading on the average advancing stock issue, the trading environment is deemed "bearish." If the reverse is true, it is considered a bull market signal.

Here is the formula for calculating the Short-Term Trading Index:

Where: AV= Volume of Advancing Stocks

DV= Volume of Declining Stocks

A= Number of Advancing Stocks

D= Number of Declining Stocks

Now, suppose that the number of advancing stocks yesterday on the New York Stock Exchange was 1,200 while the number of stocks whose prices decreased was 800. The 1,200 advancing stocks had a total volume of 1,200,000 shares, which means the average advancing stock had a volume of 1000 shares. The 800 declining stocks had a total volume of 500,000 shares traded for an average volume of 625 shares.

Plugging these values into our formula, we arrive at a "bullish" answer of 0.625. A Short-Term Trading Index of 1 is considered neutral. A reading less than 1 is considered a "bullish" signal, while a calculation greater than 1 is considered a "bearish" signal. Remember that these signals or indicators should not be considered a hard and fast rule. They should always be used with a healthy dose of caution, as the market moves in mysterious ways.

The Short-Term Trading Index can be used to help predict a bullish or bearish market. Now that you understand how the Index is calculated, let's summarize this article.


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