Traders usually make use of charts and other data in order to determine the current market movement and to predict its possible direction in the future. This will help traders in making trading and financial decisions based on the data and indicators provided, reducing some of the risks in the process. When it comes to price reversals in the market, one of the indicators being looked into is the Traders’ Index or TRIN.

What Is The Traders’ Index?

The Traders’ Index or TRIN measures the ratio of advancing stocks over declining stocks and then compares the result with the ratio of advancing volume to declining volume. The TRIN can be used to determine whether a reversal in the marker may be imminent, be it upside or downside. Trying to understand how the TRIN works in the market may not be as important as knowing how to interpret it.

A Single Moving Market?

Generally, most people may consider a market as a single entity that seems to move in a single and individual manner. But it may be more than that. The reality is, any market is composed of several individual entities that seem to move in a direction on their own. In the case of the stock market, stocks may move differently from the others and may not always go with the trend. Ir collective movement that may make people perceive that it may be moving as a whole in one dominant direction at a time. This supposed single movement of the market can be used as a basis for determining the TRIN.

TRIN Interpretation

A neutral market will provide a TRIN within the range of 0.75 to 0.85. Its value usually remains below 1.0, which usually means that the volume of advancing stocks is more than the volume of declining stocks. A high TRIN usually indicates that the bears are overly optimistic and that the market may be nearing a bottom. A low TRIN on the other hand may show that the bulls are becoming overoptimistic and a topping out of the market may be near.

Although this might seem quite simple enough, the TRIN may not always determine the market reversal that accurately. The reason for this is that different market conditions may have the TRIN handled differently. A trader using the TRIN must correctly and carefully identify the market in which the stocks may be currently trading. Careful comparisons of the TRIN with the overbought and oversold lines of the stocks must also be made to make timely decisions according to the upcoming reversal of the market.