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The Arms Index shows the link between the quantity of stocks increasing (or decreasing!) in price ( i.e. the advancing/declining issues) and what volume is associated with same. You calculate it by dividing the Advance/Decline Ratio by the Upside/Downside Ratio. Named after the inventor, Richard Arms, it is also know as the Short-term Trading Index, or even as TRIN (TRading INdex), as well as MKD, and STKS. In day trading systems, the Arms Index as a short-term trading tool may have some use. Point to note - if greater volume accompanies advancing stocks rather than declining stocks, the Arms Index will be less than 1 (bullish), if more volume accompanies declining stocks, the Index will be greater than 1 (bearish). Usually the index is smoother with a M.A. of 4 days or less for daytrading purposes. Longer smoothing periods may make it more use in longer timeframe trading. You can consider it as an overbought/oversold indicator, i.e. when it shows extremely overbought levels, a selling opportunity may be approaching and vice versa. It is doubtful whether it is as useful as the SureFireThing Camarilla Equation (original) L3 levels though. |
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