January 19


Using The TRIN To Gauge The Market’s RPM

By Julia Ellinghausen

January 19, 2021

Turn One, the Indy 500. Your 16-foot long Indycar with a turbocharged, 3.4-liter Honda engine with around 700 has you humming along at 225 mph. That’s 330 feet, or just more than length of a football field – every second.

Sure the brakes are important and so is the gas. But it’s the tachometer that tells you when to shift, based on an engine’s revolutions or speed. Without it, you can’t properly accelerate, or decelerate going into turns — which is death in a race.

In the race of the market, the TRIN Index can be an excellent tool when managing the revolutions, or oscillations, of price. Monitoring it can give you an advantage when looking for confirmation on hitting the gas for an entry.

The tachometer for the market you need to watch

Let’s just say that the dashboard on an Indycar doesn’t look much like your minivan. Everything you need to see can be found on the steering wheel — probably good since you don’t have much room for lots of gauges.

To see RPMs, instead of looking at a dial with a needle, you have a series of lights — complete with a readout — that essentially tell you when to shift.

With the TRIN, all you need to do is take a glance to see where you’re at and if it’s time to shift. Known as the NYSE TRIN index — or Traders Index — this tells you when you’re in overbought or oversold conditions. Developed by Richard Arms in the 70’s, it’s an excellent tool to use when looking for reversals.

Like the tach on an Indycar, all you have to do is glance down.

Extreme conditions that tell you when to shift into a trade

Thanks to the advanced technology in the race car, an Indycar driver only has to look for a red light as his/her signal to shift. The lights advance, starting with green, and when they reach red the engine speed/RPM has reached its peak.

Accurately seeing this opening move as an attempt to position for power, Kennedy was able to avoid escalating the situation into a full-blown military conflict.

Know when the market’s engine speed is reaching a reversal point.

With the TRIN, you have your ‘red light’ equivalent when it spikes in either direction, up or down. Starting with an index of 1, you’re looking for breaches at 1.2 or .8 respectively. At 1.2 and you have oversold conditions; below .8 and you have overbought conditions.

These conditions can be paired with your market of choice to surface high probability candidate entries. It’s like looking at everyone else, knowing you’ve got another gear, and getting ready to hit the gas.

Entries that put you in a position to hit the gas

Managing engine RPM can be the difference between accelerating into a turn at the perfect speed or having to back off and let someone pass you. It also directly impacts fuel consumption, since mismanaging acceleration and deceleration takes more gas.

Downshift or upshift into profits using the TRIN with your market

If you’ve watched a race, or even seen the highlights, you know how important gas consumption is. Likewise, the capital that fuels your account needs to be conserved for high probability entries.

When the TRIN reaches extremes, you’ve got a green light to get ready for an entry. Check out the ES example here — as the TRIN breaches the edges of 1.2 and .8, you’ve got great long and short opportunities.

A gauge read by those in the know since the 70s

It’s been around since the 70s, so why aren’t more people using it?

In the age of scalping indicators and candle formations, this simple, yet powerful tool has been sitting there all along. Market correlations are a common and very effective method for determining extreme conditions. It requires the patience to monitor and wait for the extremes that consistently profitable traders look for — not red or green arrows.

The TRIN doesn’t deliver a trade every minute, but it does deliver profitable conditions worth waiting on. Those who use it effectively, either as scalpers or position/swing traders, have the patience to wait for the right moment — rather than waste resources on a hunch or a chime (from an indicator).

Check the TRIN, pop the clutch and shift to profits

Fully pegged, the tach on an Indycar sits at 10,300. Your average Camry will top out at around 6,000 (and apparently 175 mph). Taking Turn One at Indianapolis Motor Speedway at that speed means you’ll withstand a g-force of 2.5 for nearly 8 seconds – which feels like ‘being a sumo wrestler pressed into the cockpit.’ And you’ll do it 800 items.

In the time it takes a driver to check the tach, you can quickly evaluate the TRIN Index conditions. Simply set it up adjacent to your selected market and check for extremes at the edges. Anything over 1.2 and you have oversold conditions. Below .8 and you have overbought conditions.

Compare this to where price is relative to the value zone. If you have alignment, your ‘market tach’ has just given you the signal that price is revving hot and it’s time to shift with a trade.

Pop the clutch, drop the stick and accelerate to profits.

Julia Ellinghausen

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