Monday, July 11, 2011

Very High NYSE TRIN Readings: Bullish for SPY?



The NYSE TRIN closed at 5.37, which is ridiculously high.  In fact, it has closed above 5 only 12 other times since 1993.

Primer: The TRIN, or Arms index, incorporates up-volume and up-issues to down-volume and down-issues for the NYSE market. It is the ratio of advances to declines divided by the ratio of up-volume to down-volume and is calculated using the following formula:

TRIN = (# of advancing stocks / # of declining stocks) / (up-volume/down-volume)

When this indicator hits an extreme level, it can sometimes be a contrarian indicator on a short term time frame.  A TRIN above 5 has only happened a dozen times, so I wanted to broaden it out to a close above 3 in order to get a larger sample size.  My main curiosity is this: how does the SPY usually behave when the NYSE TRIN is above 3?

Data from Norgate. Tested in Amibroker. No commissions or slippage.

Buy SPY when NYSE TRIN > 3; sell 'n'days later. $10,000 per trade; 1993 to present.
Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
         2,959
56
36
64.29
-7.42
0.53
          145
        (113)
2.30
1.28
2
         3,233
55
33
60.00
-9.33
0.59
          201
        (154)
1.95
1.30
3
         3,014
52
34
65.38
-11.53
0.58
          228
        (262)
1.64
0.87
4
         4,445
50
33
66.00
-11.53
0.89
          257
        (238)
2.10
1.08
5
         5,644
48
30
62.50
-11.53
1.18
          346
        (262)
2.19
1.32
6
         7,273
48
31
64.58
-11.53
1.52
          395
        (292)
2.46
1.35
7
         4,992
45
31
68.89
-11.53
1.11
          325
        (363)
1.98
0.90
8
         6,272
45
32
71.11
-11.53
1.39
          374
        (439)
2.10
0.85
9
         9,915
45
33
73.33
-11.53
2.20
          429
        (355)
3.33
1.21
10
         8,833
44
30
68.18
-19.61
2.01
          474
        (384)
2.64
1.23

This study is biased to bullish side. Looking 1 to 10 trading days out, this would be a high probability trade. Sure there is a nasty drawdown (2008 inflicted), but overall the numbers look positive. It's definitely not the only thing to consider, but it could add confirmation to other short term indicators a trader may have. For example, today was another 95% NYSE Down Day.  This is another way to view advancing/declining issues and up/down volume. It has also historically been a short-term bullish setup.

Good trading out there.

----------------------------------------------Random Tidbits----------------------------------------------------------

1.  Since 1993, 10 of the 12 times the TRIN closed above 5 occurred between 2007 and 2010. I'm not sure what this means, but I thought it was worth noting that this barely happened before 2007.

2.  Quick system based on TRIN above 3. Average hold is 3 days.

Buy SPY when NYSE TRIN > 3; sell on first higher close. $10,000 per trade; 1993 to present.
Exit n
 days
Net Profit
# Trades
# of winners
% of Winners
Max. Trade % DD
Avg % P/L
W. Avg. Profit
L. Avg. Loss
Profit Factor
Payoff Ratio
1
   4,373.10
53
41
77.36
-11.53
0.83
    145.13
   (131.42)
3.77
1.10

6 comments:

Anonymous said...

Hi Chris,

Have you tried taking the natural logarithm of the TRIN values to make them more symmetrical? If you do this you might be able to apply indicators such as the RSI to generate trading signals. Just a thought.

Chris said...

I haven't tried anything else. This was my first study on the TRIN. I will probably experiment more in the future. Thanks.

Anonymous said...

Chris,

Are you doing this testing in Amibroker?

Thanks,

Simon

Chris said...

Simon,

Yes, it's Amibroker

Anonymous said...

Hi Chris,

Would you mind sharing the Amibroker code for exiting on the first profitable close please?

DJ

Chris said...

profitable close means sell on a close above yesterday's close:

C>Ref(C,-1)

Post a Comment