The TRIN (an acronym for TRading INdex) is an indicator which helps to determine the breadth, or sentiment, of the market. Developed in 1967, it is often referred to as the Arms Index after it's author, Richard Arms. The TRIN measures the number of advancing issues divided by the number of declining issues, which is then divided by the advancing volume divided by the declining volume. This may sound confusing, but the equation below should make it clear:

TRIN = ( Advancing Issues / Declining Issues ) / ( Advancing Volume / Declining Volume )

Most commonly, traders will look to the value of the TRIN. When at 1.0, the market is considered balanced. Any value below 1.0 is considered bullish, while any value above 1.0 is considered bearish. This may be confusing at first, but you just have to remember that the direction of the TRIN is basically showing the inverse of the direction of the market.

While many only pay attention to the value of the TRIN when gauging market sentiment, I believe that its direction is of far greater importance. If you do not pay attention to where the TRIN has been, you can easily be deceived by the market. Here is a good example:

A trader is looking to place a trade and sees that the value of the TRIN is currently at 0.84, indicating the market is bullish. A few moments later, the trader sees the TRIN has lowered down to 0.68, while the market is starting to rise. At this point, he decides to take a long position, only to see the market swiftly turn back around and stop him out.

What went wrong here? Although the value of the TRIN was portraying a bullish market, this trader didn't take into account that it was hitting a major trendline (drawn from the previous lows) at 0.68. As soon as he executed the trade, the TRIN began to turn and slope upwards, and continued to follow its trend.

In order to see the slope of the TRIN, you will want to make sure it is shown as a line based on the close of whatever time interval you choose. The slope is simply which direction the TRIN is currently heading in. A sharp change in slope, especially off of an extreme level or a trendline, will give you a strong indication of the market sentiment. Always pay attention to the slope rather than the value.

Trendlines drawn from the highs and the lows of the TRIN are just as valid as trendlines drawn on price. A strong bounce off of a trendline indicates that the trend the market is currently following will continue. On the other hand, a strong break indicates a possible change of trend in the market. Truthfully, The best way to learn about trendlines is through experience, and once you begin draw them and see how the TRIN interacts with each one, the better you'll understand which bounces and breaks are valid and which ones are meant to 'fake you out'.

Divergence is simply the difference between the highs or lows of the TRIN in relation to the highs or lows of the market you're trading. It is a bit different than looking at divergence on the MACD or the RSI because the TRIN is an inverse of price. So, instead of looking for price to make a lower low while another indicator, say the MACD, makes a higher low, you will want price to be making a higher high while the TRIN is making a higher low or vice versa. Divergence is an extremely powerful pattern, and will very often occur when the trend is changing and result in large moves.

I hope that this information has helped, and remember, the best way to understand the TRIN is through experience!