The TRIN Strategy
According to Larry Connors and Cesar Alvarez in their excellent book, “Short Term Trading Strategies that Work“, the note that the TRIN is a very popular indicator but few people have taken the time to quantify whether or not it can provide a trader with edge. With that in mind, the authors tested and developed their TRIN strategy for the SPY.
The TRIN was originally created by Richard Arms as the Arms Index but has become known as the TRIN. The basic calculation is as follows: (advancing issues / declining issues) / (advancing volume / declining volume). Readings above 1 tend to occur when markets decline, and eventually can lead to oversold conditions, and readings above 1 tend to occur when markets rise, and eventually lead to overbought conditions.
The Authors’ Stats:
- Timeframe tested: 12 years
- Instrument: SPY
- Win Rate: 75.56%
- # Trades: 90
- SPX points gained: 558.30
- Avg. Holding Time: under 4 trading days
What You Get
- The TRIN strategy file for thinkorswim
- All parameters include the default settings from the authors that gave the above results when the authors tested it
- All parameters are customizable in the properties menu, including SPY sma length, TRIN threshold, etc.
- Customizable market hours
- Option to use a percentage-based stop or not to use a stop
- Specify the size of stop to use, if any
- Customizable colors
Why You Want It
- The extremely high win/loss ratio on the SPY and SPX, as demonstrated by the authors, makes it an easy strategy to trade from a psychological standpoint
- Option to add a stop makes the strategy even more easy to trade
- Long-only strategy further makes it suitable for almost anyone, regardless of the type of account they trade out of
- Ability to quantitatively backtest the strategy on multiple instruments, timeframes, and conditions affords more peace of mind and encourages traders to fully trust in their system
- The ideas behind this strategy and its edge can be taken and further customized to your trading style to create a unique edge that only you know about
How it Works
The TRIN strategy works as follows: if the SPY is above its 200 day sma (indicating a primary uptrend), and the 2-period RSI of the SPY is under 50, and the TRIN closes above a reading of 1 for 3 consecutive days, a buy signal is issued. A sell signal is issued when the RSI(2) of the SPY closes above an overbought reading of 65.