Using TRIN To Create A Winning System

About the Author Jeff Swanson

Jeff is the founder of System Trader Success - a website and mission to empowering the retail trader with the proper knowledge and tools to become a profitable trader the world of quantitative/automated trading.

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  • John says:

    Strategy’s weak points:

    1)low number of trades and thus miniscule return;

    2)TRIN is unique to broad market indices (NYSE, SPX, Dow), so you can’t neither diversify nor increase trade count.

    • Hello John. I would like to point out the text in the article, “Please remember, as it stands now, this is not a complete trading system. For example, there are no stops or money management rules. However, it’s a great starting point from which you can build your own trading system.” Furthermore, I also would like to point out that returns on any given system are controlled by the position sizing model one uses – not just the trading system. Dial-up the risk and your returned increases, often dramatically. Finally, you always can diversify. That’s done by trading a number of different systems on different markets across different timeframes. This is article is just one concept.

      • John says:

        How big a position size should be to turn 6.7% into, say, 20%?

        You can’t diversify into markets with stock nomenclature substantially different from that of NYSE. That leaves you with the three I mentioned or their likes. Naturally, they are all highly correlated because of similar composition.

        • John, based on my calculations a 8.5% risk on a 25K account would put you around 21% annual rate. As before, diversification is done by trading a portfolio of trading systems across different markets.

          • John says:

            Jeff, thanks for your prompt replies. You cleared my head on the subject.

            BTW, great job with this blog. Keep up the good work and thanks for the booklet on system development.

          • aya says:

            Hi Jeff,

            Could you please elaborate on your calculations, especially on how you assess trade’s risk in the absense of stops?

            What position size in equity percentage terms would 8.5% risk mean?

            I guess that would be very instructional for many.

          • Aya, when I don’t have a stop value on an example system, I used the average loss for all losing trades. If I remember correctly, that was around $1,000. If you are risking 8.5% on a $25,000 account this would mean we could risk up to $2,125 on the next trade (8.5% X $2500). Then, if the average losing trade is $1,000 this means we can trade 2 contracts ($2,500 / $1,000). You can find more information about position sizing in this article,Bulkowski Position Sizing and this article, Percent Risk and Volatility. Hope this helps!

  • Oliver says:

    Hi Jeff,

    I tested both sides of the system (long/short) from 1992 until now in excel. As to the long-side my findings are in accordance with yours, but as to the short-side they are clearly not. In my tests the expectancy per trade of the short-system is almost 0%. I double-checked everything. The result doesn’t change if I look at other test periods.

    Do you have an explanation for the dramatic difference?

    Thanks a lot!

    Best regards Oliver

  • rob says:

    Could I use the TRIN on a 60 min chart in ES and would it make sense to use it on such a small time frame?

    • Good question. I think it’s worth testing, that’s for sure. Generally these types of signals are less effective on smaller timeframes. However, I’ve not tested it myself. That would make for a good study for another article.

  • JimPunkrockford says:

    is Data2 VIX or TRIN?

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