What does the Arms Index (TRIN) measure?

The Arms Index, commonly known as TRIN, is a technical analysis indicator that measures the market's breadth by comparing the number of advancing stocks to the number of declining stocks, adjusted for their respective volumes. Specifically, TRIN calculates a ratio of the advancing volume to the declining volume and relates it to the ratio of advancing issues to declining issues.

When the Arms Index value is below 1, it often indicates bullish market sentiment, suggesting that there are more advancing stocks and volumes, which typically reflects investor confidence. In contrast, a TRIN value above 1 can suggest a bearish sentiment, pointing to a dominance of declining stocks and volumes.

By measuring the relationship between price movements and volume, TRIN helps traders understand whether a market trend is supported by the underlying breadth of participation, making it a powerful tool for assessing market strength or weakness based on the collective movements of stocks. This focus on the relationship between advances and declines is what makes the choice regarding the ratio of advances to declines the correct answer.