Page 228 - THE MARKET WHISPERER

224 PART 7 - Indicators: The Trader’s Compass

Let us analyze the TRIN without looking at the market chart:
At the start of trading, the TRIN rises and we understand that the market
is trending down. About half an hour later, we find a jump to 2.2 [1]. This
means it is reasonable to presume that a sharp low has occurred, with
high volumes of trade. A 2.2 reading is very extreme, and indicates that the
market is in a state of downward tension (a state of oversold) and we can
expect a correction. The TRIN drops to below 1, indicating that the market
is moving back into highs. At [2] we see the trend of highs stop, and the
market begins moving sideways. At [3] the TRIN drops slowly, indicating
a further try for highs, but its slow movement indicates that the market is
rising in small volumes which are not creating enthusiasm.
Now we will examine the SPY at those same points:

Examine the TRIN and the market chart and try to “understand” the
relationship between these two indices. I do not expect you to reach
conclusions at this stage, but I do expect that when you start trading, you
will carefully observe both and try to understand the balance and influence
on anticipated trade patterns, especially at the points of extremities.

Reservation: the TRIN is not a reliable stand-alone indicator. It is only
one of several indicators which together provide insight for a trader. The
TRIN must be integrated with additional indicators, and all the information
weighed to create a more informed comprehension of anticipated market
patterns.

Further note: The TRIN operates well on normal days. On days when
Wall Street is really riled up, many indicators, including the TRIN, may