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TRIN Indicator – Technical Analysis

An oscillator-type indicator primarily used to identify short-term overbought or oversold conditions in the stock market

Written by

Tim Vipond

Published February 5, 2023

Updated July 7, 2023

What is the TRIN Indicator? Calculating the TRIN Indicator

Looking at the calculation for the TRIN indicator makes it very easy for a trader to understand what the TRIN reflects. The calculation for the TRIN is as follows:

(Advances/Declines) / (Advancing Volume/Declining Volume)

2.98/7.17 = 0.42

Interpreting TRIN Values

Successfully using TRIN levels to indicate temporary overbought or oversold levels in a market can be a bit tricky. First of all, TRIN values appear to be inverse, in that higher values indicate increased selling while lower values indicate increased buying.

Generally speaking, TRIN values below 0.50 are considered to indicate overbought conditions in which analysts anticipate an impending corrective retracement downward. TRIN values above 3.00 are typically interpreted as indicative of oversold conditions that may give rise to an upside rally. A TRIN value of 1.00 indicates a balanced stock market that is neither overbought nor oversold.

One can quickly see that there’s a wide middle range of possible TRIN values between overbought values below 0.50 and oversold values above 3.00. In order to make the TRIN indicator more useful, analysts look not just at the basic TRIN values but also at how the TRIN value changes throughout a trading day or over a longer period of time, such as during a trading week. By doing so, analysts can more precisely pinpoint what constitutes extreme levels, to one side or the other, in the TRIN under whatever the current market conditions are.

For example, the market might go through a period where TRIN values go no lower than 0.75 and no higher than 2.25. In such market conditions, analysts may determine that those two extreme values accurately reflect overbought and oversold conditions for the market during that specific time period, even though they fall short of what are typically the TRIN value levels that are considered to indicate overbought/oversold conditions.

Some traders and analysts who watch the TRIN indicator focus on the TRIN’s equilibrium value of 1.00 and consider any readings below 1.00 as potential indications of overbought conditions, and any readings above 1.00 as potential indications of oversold conditions.

Volatility Shortcoming of TRIN

One of the shortcomings of the TRIN indicator is that its value can fluctuate significantly either intraday or from one trading day to the next even under overall market conditions that would not usually be described as volatile.

In order to smooth out some of the inherent volatility in the TRIN indicator, some traders and analysts prefer to look at a 10-day moving average of the TRIN value.

Using the TRIN

Analysts commonly use the TRIN indicator to identify market conditions under which the short-term market trend may soon shift from bullish to bearish (when the market is temporarily overbought) or from bearish to bullish (when the market is temporarily oversold). Traders may use the trend to identify potentially profitable buying or selling price levels.

The chart below shows that traders who bought into the market when the TRIN showed values above 3.00, indicating oversold conditions at the market levels indicated by the green up arrows, would have fared very well. However, traders who sold the market based on TRIN values below 0.50, indicating overbought conditions would not have been so profitable over the same time period.

The TRIN is typically a leading indicator – one that projects a market turn before it happens. Looking at the above chart, one can easily see that the TRIN often anticipated an actual turn in the stock market direction by a day or two. While this may afford a trader an opportunity to “sell the top” or “buy the bottom”, most traders will look for confirming price action in stock market index values before investing based on an anticipated market reversal.

When TRIN values are relatively steady and around the 1.00 equilibrium level, many traders will stand aside and wait for further market action before making or adjusting any investments. Market activity that occurs without moving the TRIN indicator very much one way or the other is more likely to prove insignificant for the trading day.

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