TRIN (Arms Index) Trading Strategy: Exploring the Concept and Conducting a Backtest
The Arms index or short-term trading index (TRIN) is a market sentiment indicator that helps gauge the internal strength or weakness of a market. It compares the number of increasing and decreasing stocks (AD Ratio) to the increasing and decreasing volume (AD Volume). We make a backtest of a TRIN Arms Index trading strategy.
We backtest the following trading rules:
When today’s TRIN reading is above 100, we go long the S&P 500 (SPY) at the close.
We sell at the close when today’s close is higher than yesterday’s high.
The equity curve of the trading strategy looks like the image shown below.
You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/trin-strategy/