Technical Analysis: Power Tools for Active Investors

Relative Strength Investing

The basic principles of relative strength investing are as follows:

• Identify the leaders.

• Buy the leaders.

• Hold the leaders for as long as they lead.

• When the leaders slow down, sell them and buy new leaders.

Simple enough?

Let’s get more specific.

For investors of average to below average risk tolerance, start by securing a database or two of a large number of mutual funds. I prefer a database of at least 1,000 mutual funds—preferably more, but for the purposes of a single investor instead of a capital manager, a few hundred is almost certainly sufficient.

You need quarterly data, so almost any source that tracks mutual funds and provides quarterly performance data serves your purpose. Barron’s the Dow Jones Business ...