Novice Traders' Notebook  |  APR 1996

The Arms Index by Bruce R. Faber

The Arms Index by Bruce R. Faber Here's the scoop on the Arms index, a stock market indicator that incorporates the number of advancing and declining stocks with the advancing and declining volume. The index is widely used as an indication of overbought and oversold conditions in the marketplace. In general, most stock market technical indicators use the closing and daily range prices of a stock or an index for calculations. However, some indicators use what may be considered internal measurements of market activity. This group of indicators is gauging the strength or weakness of the market from within by looking at the combined activity of individual issues, such as the number of advances and declines. As a comparison, if you were observing a battle and you could see that one by one individual soldiers were making headway or beginning to retreat, you could at some point make an educated guess as to the outcome of the battle, possibly well before the conclusion. For observers of the stock market, one such popular analytical tool, the Arms index, measures if bulls or bears are winning the battle. The Arms index, named for its creator Richard W. Arms, has gone by many names and many abbreviations. The index was originally introduced in Barron's in 1967 as the ""short-term trading index,"" and even now you can find references to the index as ""TRIN."" The index's acceptance came quickly after introduction, and since then it has become a part of many trading strategies.

by Bruce R. Faber