Traders can often detect
if the market goes up, due to short-covering or real buying from Money Makers,
by applying TRIN. If the TRIN is greater
than 1, market runs up very fiercely and the ISEE is very low. You must be
aware that the market may not be sustainable, since the major institutions
might not have participated in the rally.
On the other hand, the rally might have been driven by short-covering or
stock buying mainly from retail investors.
Similar to other
momentum indicators mentioned in this eBook, the TRIN has the capability to
detect short-term overbought and oversold situations, since it functions as an
oscillator. It is frequently monitored
by investors and traders, especially momentum and swing traders.
To smooth the TRIN
reading, a moving average is applied to accomplish this goal.
In chart 1, the green lines
indicate the neutral value range for the TRIN, which is between 0.5 and 3 based
on a 10-day moving average. If the TRIN
goes beyond a reading of 3, the market might enter the overbought condition.
Traders could sell short, take profits on long positions, or buy Bear
ETFs. Likewise, if the TRIN drifts below
a reading of 0.5, traders become more optimistic about the market and take
action accordingly.
+chart+1.png)
Source: Line Graph Outline form stockchars.com. Actual data compiled by Authors.
The market had been in an
uptrend direction since November 2012. It was more likely that the market
approached overbought than oversold conditions.
It is obvious that this internal strength is sensed in the above
chart. Hence, the TRIN reveals that the
overbought status most often creates bullish signals in the gigantic uptrend
market.
Have a nice day!
No comments:
Post a Comment