The Ticks

The Tick Index is a short-term trading index which takes the difference in up ticking stocks from down ticking stocks. For example: if there are 2000 stocks trading on the NYSE and 1500 trade higher from the previous price and 500 trade lower from the previous price the Tick Index will read +500 (1500 - 500).

The Tick Index is a Market Internal used to and validate moves in the markets. When using the Tick Index we are looking for extremes to confirm or deny a move. Tick readings of +1000 or -1000 are considered quite strong as we tend to stay within the 1000 and -1000 levels most of the time.

Arms Index – TRIN

Developed by Richard Arms in 1989, the Arms Index, also called the TRIN (TRaders’ INdex) is designed to detect overbought and oversold levels in the markets. The indicator looks at the number of advancing stocks versus declining stocks combined with how much volume is flowing into these stocks.
This is a contrarian indicator, meaning it has an inverse relationship with the market. A ratio of 1 means the market is at parity, above 1 indicates more volume is flowing into declining stocks, and below 1 indicates more volume is flowing into advancing stocks.

Used in conjunction with the A/D Line and Breadth, the TRIN ratio can be used as an intraday indicator to confirm or deny the changing market trend. It can also be looked at from a daily perspective, when applying a 10-Day Moving Average Arms considers a decline below .8 overbought and a move above 1.2 oversold.

A/D Line and Market Breadth

Advance Decline Line: The a/d line is a number composed of the net sum of advancing stocks minus the number of declining stocks (ie: a day with 500 advancing stock and 2000 declining stocks would yield an a/d line of -2000). This number is calculated separately for the NYSE and the NASDAQ.

An a/d reading of greater than 1500 or -1500 is usually indicative of a trending day. Therefore if the a/d line opened the day at +1600 and remained at this level or better, any pullback would be buyable because internally the same number of stocks are still advancing. This scenario is flipped for shorts, with an a/d line of say, -1900 any bounce would be shortable.

Breadth Ratio: This is a figure composed of the ratio of volume flowing into up stocks compared to the amount of volume flowing into down stocks. A breadth ratio relative to 1 is generated (ie: a day with 10M shares of advancing volume and 5M shares of declining volume results in a breadth of 2:1 Positive, 2x as many shares are rising than falling).

Generally, the Breadth is more important than the advance decline line because it takes into account the volume of advancing to declining shares. A breadth number is calculated separately for the NYSE and the NASDAQ.