Arms’ Indicators

 

TRIN indicator

Arms’ Index was developed by Richard W. Arms Jr. back in 1967 under the name TRIN, Arms’ Short-Term Trading Index (fig. 1). Currently, this Index is of great importance, as it is the leading Index on the NYSE, New York Stock Exchange, that is, it is a classic stock indicator (stock exchange). In some software products it is also called MKDS.

TRIN indicator for Forex trading

Fig. 1

TRIN indicator review

In fact, TRIN is a Forex indicator that shows the supply/demand ratio in the market (full truth about Forex). Arms’ Index is calculated by formula: TRIN = (Growing Assets/Declining Assets)/(Growing Assets Volume/Declining Assets Volume). And if after the solution the value is more than 1, then the market is «bearish, if less than 1 — the market is «bullish». If the ratio is equal to 1, then there is a balance between sellers and buyers. In this case, if the Index is equal to one, then we should expect a change of trend. According to the author’s plan, Arms’ Index is a leading tool for Forex trading.

The peculiarity of TRIN indicator is that it has, one can say, an inverse relationship with the market dynamics, that is, the growth of TRIN indicator shows a bearish trend, and the indicators downfall shows a bullish trend.

Arms’ Index is used for short-term trading, as it allows you to quickly decide whether to buy or sell an asset. But it is believed that its use as an indicator of overbought/oversold can be more effective. If Arms’ Index indicators are lower than one, it means that the market moves to overbought, if more than one, the market moves to the oversold condition. In this case, the logic is standard — if the indicator falls to overbought values, it can be a signal to sell, if the indicator shows high oversold, you can prepare to buy.

Traders note the universality of Arms’ Index. It can be used with almost any asset — from global to very specialized ones. Arms’ Index is an indicator for working on the stock market, global market trends are often illustrated by this very tool. But it is easy to find a way to use it for Forex trading. Although it cannot be considered popular, not every trading terminal has it, even in «Market» of the Metatrader 5, it is difficult to find it in third-party sources of the network. In addition, the use of Ar requires skills and only few Forex strategies are specifically developed for working with it. And, besides, the indicator is not so irreplaceable that it is purposefully searched for and used in trading.

Sign in by broker’s terminal, add the TRIN indicator to the chart, and see what happens

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TRIN indicator signals

T signals are informative, but they are recommended after a certain practice, preferably with additional tools. However, there are a number of Forex signals that can be considered classical for this indicator. For example, the possibility to open a position to buy can be considered when the Index goes out of the oversold area.

Correspondingly, when the Index is out of overbought, it is possible to open sell positions. In turn, the convergence in the falling market and the divergence in the rising market are reversal signals. As for the numerical values of the Index, Richard Armstrong argued that almost immediately you can buy assets at the Index of 2.0, and at the Index of 0.2 you should sell.

Trading strategies based on TRIN

TRIN is most often used as a trend indicator with the addition of signals of the exponential moving average, it is considered optimal to set the period of EMA from 8 to 20. For example, if the EMA is set with an 11-day period, the purchase in this case is carried out when the line exceeds the 0.8 mark. But if the Index decreases further, it is recommended to close the position. If the EMA with the period of 21 is set, the position to buy opens at the indicator indicators above 2.1. But to implement strategies, relying on TRIN information, it is necessary after training on the demo account.

Since TRIN shows the information «inverse» to the usual market (the value above 1 — decline, the value below 1 — rise), many traders use it «upside down», that is, contrary to the price chart. Then the lower marks of TRIN will correspond to the peaks of the price chart, and the upper marks of the Index will correspond to the decrease in prices.

One of the optimal additional indicators for Arms’ Index is also the NH-L stock indicator. Recall that NH-L is the Index of new tops and bottoms of the trading chart. It shows the convergence or divergence of indicators with the price charts, the direction of the trend — its growing indicators confirm the bullish trend, falling — downward. Like TRIN, the indicator NH-L is above zero, the market is dominated by bears, if lower – by bulls. As well as T, NH-L is used with moving averages for smoothing the indicators.

When interacting within a strategy, if Arms’ Index shows oversold, but NH-L updates the lower values, it is a signal to continue the dominance of the bears. If TRIN shows oversold, and NH-L shows a bearish convergence, it may be a signal to buy, and inversely, if TRIN shows the oversold, there is bullish divergence on NH-L, then it may be a signal to sell.

 

EMV indicator

Richard Arms has created a lot of well-known indicators, which can be used effectively in trading. The most popular indicator, which is sometimes used by Forex traders, is Ease of Movement Value (EMV, fig. 2).

EMV indicator for Forex trading

Fig. 2

EMV indicator review

It is also based on the market volume and its attitude to prices, and its main task is to demonstrate how much trading volume is needed to shift the price. This indicator has a long history of effective use in trading on the stock market, and is now quite popular in binary options trading. But since not too long ago, the indicator is also used in Forex trading, appeared in the «Markets» of trading platforms. There are not many strategies for it yet, including because it does not have any distinct advantages over other indicators and oscillators for Forex.

On the price chart EMV is presented as a histogram, a line or both lines and histograms. As well as Arms’ Index, this indicator has a rather simple interpretation of signals. Thus, if the indicator indicators are growing, it means that the prices are growing, while the trading volumes are small, it allows you to expect a reversal. If the EMV indicator is falling, it shows that prices are falling at small market volumes — you can expect a reversal. Accordingly, if EMV values are around zero, it shows the uncertainty in the market.

EMV is calculated using the following formula: EMV = Midpoint Move/(Volume/High-Low), where Midpoint Move = (today’s maximum + today’s minimum)/2 — (yesterday’s maximum + yesterday’s minimum)/2. EMV is not included in the list of standard indicators of trading platforms, in particular, in Metatrader 4 and 5. You can find it here.

Moving down the “way”: «Insert» — «Indicators» — «Custom», you need to find the indicator file on your computer, upload it to the program folder, then add it to the price chart. You can also find it in the «Navigator» section on the left side of the terminal. In the settings you can change the type of moving average for smoothing the indicators, the type of indicator, data for calculation.

EMV indicator signals

The EMV indicator indicators are generally simple: the growth of the indicator values shows that the prices of an asset grow with small volumes of trades. This may mean that even a small volume can change the trend in the market. Accordingly, the decline in EMV indicators shows that asset prices fall at low volumes and it is possible to change the trend at low volumes of trading.

EMV fluctuations in the zero zone, on the contrary, show that a large volume of trades is required to change the trend. If the indicator shows large positive values, it indicates that the price is rising, but the trading volumes are small, on the contrary, large negative values show that the price of the asset decreases with small volumes of trading.

The signal to buy is the position where the moving average crosses the zero line of the indicator from bottom to top and develops further. On the contrary, the signal to sell can be considered the crossing of the indicator as a moving average of the zero line from top to bottom.

In some versions of the indicator, its color is informative for MT4 and MT5. For example, an uptrend colors the indicator histogram blue, the values here are above zero. A descending trend collapses and the histogram is colored red, the values are below zero.

Entering or exiting the market by means of EMV are marked during the trend reversal. For example, when crossing the zero level from the bottom upwards and changing the color of the histogram from red to blue, you can consider the probability of opening a position to buy. Accordingly, if the histogram crosses the zero level from top to bottom and changes the color from blue to red, it is assumed that you can open a sell position. The difference is manifested in the fact that the price, updating its peak, is displayed by the histogram of the indicator as below the previous one, and when the new minimum is updated, it shows that it is not below the previous minimum.

Trading strategies based on EMV

The easiest way to apply EMV is to trade only by its indicators. If the indicator is in the positive zone — perhaps, it is necessary to open a position to buy and close them when it rushes to the negative zone. If the indicator is in the negative zone, you can open positions to sell and close them when it goes into the positive zone.

But the indicator is not recommended to use without additional tools. More precisely, if used, EMV is most often used as an additional oscillator in strategies with other indicators and serves to confirm the signals to enter the market or exit from the trade from other indicators.

Forex trading strategy with EMV, RSI and Momentum

Fig. 3

It can be the RSI, Momentum indicator (fig. 3) or some type of resistance and support lines. In any case, before applying EMV in practice, it is necessary to train on a demo account.

 

Summary

Arms’ indicators, although not so popular with traders in different markets, but can help them in analyzing the dynamics of assets, show the current trends, the exact signals to enter the market, etc.


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