Volume and Open Interest
One tick represents one trade. Tick volume therefore represents transaction vol-
ume. One transaction can be comprised of 1 contract or 1000 contracts. Although
tick volume does not represent actual volume, there still exists a very strong cor-
relation between actual volume and tick volume, and tick volume may be used as
a proxy for actual volume, as far as comparing relative levels of overbought and
oversold.breadth Volume and the arms Index The Arms Index, or TRIN, incorporates
breadth volume, advances, and declines. It is simply the ratio of:TRIN=(advances/declines / Up Volume/Down Volume) ( )In short, a rising but not overbought tick and a falling but not oversold
TRIN represent a bullish signal where the trader looks for an appropriate long
entry. Conversely, a falling but not oversold tick and a rising but not overbought
TRIN represent a bearish signal where the trader looks for an appropriate short
entry. For longer‐term trading, when tick is oversold (i.e., above its two‐sigma
level on a weekly chart), and TRIN is overbought (i.e., near or above the 3.0
level on the daily charts), this signals a bullish scenario and the trader looks for
an appropriate long entry. Conversely, if the tick is overbought and the TRIN is
oversold, this signals a bearish scenario and the trader looks for an appropriate
short entry.
In Figure 6.25, we observe both the tick and TRIN at oversold levels. This in-
dicates short‐term bullishness on the 1‐min chart of the S&P500 Large Cap Index.
We subsequently see the index rising.fIgure 6.24 Open Interest Indicating Bearish Divergence on the Continuous Daily
Chart of Silver.