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# A question regarding the theoretical validity of TRIN

Discussion in 'Technical Analysis' started by Thunderdog, Dec 1, 2006.

1. ### Thunderdog

I have no doubt that many people use the TRIN indicator, and some perhaps even successfully. However, I have a question regarding its theoretical basis and validity. Permit me to explain, and perhaps you can help clarify my thinking.

As I understand it, TRIN is calculated as follows:

http://www.investopedia.com/terms/a/arms.asp

This equation can also be presented in the following manner without changing its resulting value:

Therefore, what we are doing is multiplying the number of advancing issues by the volume of declining issues and then dividing this numerator by the product of the number of declining issues times the volume of advancing issues.

It is here that I have a bit of a problem with my understanding. If we are multiplying the number of advancing issues by the volume of declining issues, are we not muddling the number? If we were looking to go long, then we would probably want the number of advancing issues to be high and the volume of declining issues to be low. So do we want the resulting numerator to be higher or lower, because each of its two components are on opposing sides: we want more advancing issues but lower volume of declining issues?

Similarly, the denominator of the TRIN equation is the product of the number of declining issues multiplied by the volume of advancing issues. Again, do we want this denominator to be higher or lower, since if we were looking to go long we would probably want a lower number of declining issues and a higher volume of advancing issues?

Essentially, each of the two components of both the numerator and the denominator are at odds with each other. Therefore, is the numerator, say, higher because the good number is higher or because the bad number is higher? Similarly, is the denominator, say, lower because the bad number is lower or because the good number is lower? In effect, do you really know what the indicator is actually saying because of the apparently contradictory nature of its construction?

Admittedly, I am looking at the indicator in isolation and I will not pretend that I know how to use it. And I am not looking to discount its practical value to those traders who have used it with positive effect. What I am asking is, what theoretical value does it offer if my above observations are valid? And if my observations are not valid, then please tell me why.

2. ### whitster

the TRIN is not an indicator (at least for me) that says BUY here or sell here.

TRIN is simply a measure (which is obvious if u see how it is constructed) of buying or selling pressure across the board.

what is important is NOT the value of the trin, nearly as much as how it is trending.

if the TRIN is trending downwards that shows accumulation - buying pressure.

i really don't want to get into the math of it, but i suggest you reassess your question. it seems you are looking at TRIN to tell you something it was never intended to tell u

3. ### Thunderdog

Perhaps I was not being clear. Please bear with me. As noted in my first post, the formula for TRIN is:

This equation can be presented in the following manner without changing its value:

And this equation, in turn, can be presented as follows without changing its value:

(advancing issues x volume of declining issues) / (declining issues x volume of advancing issues)

Against this background, let's consider your proposed scenario of a down trending TRIN. TRIN will go down if its numerator goes down and/or if its denominator goes up. For the numerator to go down, you must have a smaller number of advancing issues and/or a lower volume of declining issues. This "and/or" is theoretically at odds with itself, meaning that the numerator could go down either for a "good" reason or a "bad" reason for someone wishing to go long. Further, for the denominator to go up, you must have a larger number of declining issues and/or a higher volume of advancing issues. Again, the denominator can go up for either a "good" reason or a "bad" reason for someone wishing to go long. So how do you know if its going up or down for the right reasons? Does TRIN not, in effect, confuse the matter rather than clarify it?

Please understand that, contrary to what you wrote, I am not looking for TRIN to tell me anything. And I am not going to argue with people who use it successfully. Rather, because TRIN is a mathematical formula, I am just trying to comprehend its mathematical validity. Personally, I am not a big fan of indicators in general, so I am not looking for "how-to" help with TRIN. I would just like to understand how it is supposed to work in theory given the apparently contradictory nature of its construction.

4. ### Bearbelly

Arms, in his book, gives a method of using this indicator, intraday, that I have not seen anywhere else. I have not tested it realtime yet, I wonder if anyone here has.

5. ### whitster

"Against this background, let's consider your proposed scenario of a down trending TRIN. TRIN will go down if its numerator goes down and/or if its denominator goes up. "

um, not true. again, you need to reasses your math.

that is not inclusive of what makes trin go down.

TRIN can ALSO go down if both the numerator and the denominator go up or down.

the issue is the ratio, which you fail to realize

example

Numerator = 5
Denominator = 10
Trin = .5

Now...
Numerator = 10
Denominator = 40
Trin = .25

BOTH the numerator and denominator went UP!
yet, the TRIN went down

so, like i said - reassess your math.

it's lacking

6. ### whitster

"Against this background, let's consider your proposed scenario of a down trending TRIN. TRIN will go down if its numerator goes down and/or if its denominator goes up."

also, both mumerators and denominators can go down and the TRIN can still trend down

do i have to give you examples for this as well?

reassess yer math

7. ### jack hershey

Thunderdog,

People are trying to be nice here.

TRIN is a terrific tool.

Algebra I is a tough subject for some persons.

Lets say you wanted to make a load of money every once in a while. Then you turn to part 5.7 on the expert's discussion of this and that. Think 7 times a month.

Lets say you want to make money with TRIN during the day and more frequently. Then you turn to section 5.6 of the expert's discussion. The values for this frequency are A the next mosst frequent is B , etc..

The expert does not take you to an algebra I book.

He makes you read, understand and practice making money with differing degrees of knowledge, skills and experience. He gives you videos of him training professions and some kinds of amateurs.

We know you are a well known skeptic. Being more and more skeptical as time passes is good insurance for you for not losing money.

TRIN is not used to not lose money, however.

Look at the number of times I have posted on TRIN. Almost never.

Do you know why? Maybe not.

TRIN is an advanced type of INDICATOR that is best used by certain types of people. They are usually called ....... Fill in the blank. There aren't many here in ET.

Go look up the experts in this field. Do not tell them anything about Algebra I. Algebra I is not used anymore to make money.

8. ### whitster

his argument starts from false assumptions.

if the math is wrong, it's wrong

and it is wrong.

9. ### jack hershey

Taking that into consideration and considering it carefully, the next steps that may be possible are going to be tough to discern.

It is something else to see a couple of people work together in real time and just nail the market using TRIN.

Knowing how to know can be a very very tough proposition.

I do not think, anymore, that it is possible to walk people through some kinds of things. The mind can not be erased, so it get very tough.

10. ### Thunderdog

No, you do not need to provide examples, even though you already have. Forgive me, but your comment suggests that you may be missing my point. What you wrote is true but it is beside the point. My point is that both the numerator and the denominator are comprised of theoretically conflicting components, the product of which seems to confuse rather than clarify what is actually going on. Yes, it's about the ratio, but you can get the same ratio and ratio trend values with potentially very different underlying market scenarios because of the way in which the formula is constructed. That is my point. I may be mistaken. But before I reassess my math, you should understand yours.

#10     Dec 1, 2006
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