Relative Strength

10 oct. 2020

A relative strength overlay, similar to that of IBD shown on Marketsmith.

The value is not from 0-100, it is compared with the Nasdaq x2 ETF, QLD. Therefore, if greater than zero it will give you a good indication that the stock has a very good relative strength.

Feel free to change the comparison ETF to one of your choosing.

11 oct. 2020

Notes de version

In this updated/different version, the overlay is removed, and the stock price is removed from the scaling factor.

This allows you to compare the relative strength value between stocks.

The baseline will be a value of 75, which is the relative strength value of the 2x Nasdaq ETF "QLD". Therefore any stock with a value over 75 will have good relative strength.

11 oct. 2020

Notes de version

This latest update features a more logical & robust calculation of Relative Strength.

Normally, Relative Strength calculations account for the change in price of an asset to it's MA (usually 50 MA). It then compares this to the same behaviour of another stock or typically an index.

This means stocks which are moving up recently from it's 50 Day have a higher RS value.
PROs: Highlights stocks making strong moves.
CONs: Does not fully account for stocks that have made powerful moves but are currently consolidating.

Another way to calculate Relative Strength, would then be to look at the % price change of a stock, compared to the % price change of an index, over a certain period.
PROs: Highlights stocks that have made strong moves.
CONs: Does not fully account for stocks which are currently making strong moves.

A current example of this would be the stocks FSLY and TSLA (as of 11/10/2020).

FSLY is currently showing huge strength, breaking out of a long base & is behaving as a leading stock. However it's % change over the last 50 days has only been around ~35%.

TLSA on the other hand is currently basing, other stocks are moving up therefore, at the moment, it is not showing much strength. However if you look at how it has been behaving over the last few months, it is an absolute monster, this needs to be factored in.

SOLUTION:

My solution is to take both calculations of Relative Strength, and take a weighted average of the two. After analysing over 100 stocks with this method, I have found that the most reasonable weighting is a 1:0.67 split of the 50 day calculation vs Price Change calculation, as the latter has a wider value spread.

This indicator will show a singular value of the current RS of the stock, and also the values of the other two calculations.

A way to use this would be to make a spreadsheet & compare the RS values of stocks on your watchlist.

Happy Trading everyone!