Discussion in 'Trading' started by CoralReef, May 12, 2008.

  1. Lets say the market is at equilibrium meaning the ratio of advancers/decliners is equal to the ratio of volume of advancers/decliners.

    Now if the market moved up AND we noticed the volume of advancing stocks are getting a bigger chunk of the volume
    meaning the TRIN is going down below 1 what does this really mean?

    Does this mean traders are ignoring weak stocks and buying strong stocks?
    Why would that happen anyway? If smart money thought the market was going up why would the weak stocks be left out in terms of volume?
  2. The TRIN used to confuse me too… Its hard to describe in words because it is a ratio of ratios, but it shows you how concentrated the volume is among the advancers and decliners, and the TREND of the TRIN is the most important part.

    You can actually have more decliners than advancers, and more total volume going into decliners than going into advancers, but still have a bullish trin… this is because the volume going into advancers can be more heavily concentrated among a smaller number of advancers, while the declining volume is spread out thinly among all the advancers. Odds are, in this case, there can be a ton of advancers that are above their open but going nowhere, while there are fewer stocks below their open but moving more. The TRIN shows you where the volatility is.

    (using simple unrealistic numbers to make it easier…)

    100 advancing issues, 50 declining issues… seems bullish

    100 advancing volume, 75 declining volume… seems bullish

    But its not…

    (Advancing issues/declining issues) / (advancing volume/declining volume)

    Issues: 100 / 50 = 2

    Volume: 100 / 75 = 1.33

    2 / 1.3 = 1.5 …which is bearish, confused? How could the number of advancers be higher than decliners, and advancing volume be higher than declining volume, and the TRIN be bearish?

    Well… divide the volume by the issues individually…

    100 advancing volume / 100 declining issues = 1 share per issue.

    75 declining volume / 50 declining issues = 1.5 shares per issue… which is a heavier concentration.

    Its like mixing ink with water… you can have a FULL glass of water, and 10 drops of ink. And you can have a HALF-FULL glass of water with 7 drops of ink. The HALF-FULL glass will actually be darker in color, that’s how the TRIN works.

    Even with this understanding the TRIN can still give ridiculous readings because of the way its calculated, look at the A-D line and the A-D volume line individually in their own charts along with TRIN. They can tell you when the TRIN is behaving ridiculously because of its odd calculation.