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Trading Tools and Tactics: Reading the Mind of the Market by Greg Capra

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Chapter 9

Relative Strength

Relative Strength Defined

Relative strength is the visual comparison of one stock to another, or the stock as compared to its sector, or the market in general. It can also be one sector compared to another sector or one sector compared to the broader market. Any of these can also be compared to various market internals. Most of this chapter discusses the concept of relative strength but keep in mind that the information will also apply in the exact same manner for relative weakness.

Most often, when discussing relative strength, we are looking at a stock as it relates to the market in general; a visual pattern in which the particular stock shoulders a stronger pattern than the market does. Note we are not talking about a technical indicator that is in some charting packages and known as the Relative Strength Indicator (RSI), a name that is completely misleading since the indicator does not show relative strength at all. RSI is just another indicator that is widely followed since it's in every charting program. But as I've said before this and other indicators aren't needed and are best left to the chart artists.

The comparison charts in Figure 9.1 give you an idea of the visual picture we are looking for to view relative strength. Similar to much of technical analysis, there is no exact definition for relative strength. Technically, any stock that shows the slightest degree of a stronger rally or the slightest degree of a lesser decline would be considered ...

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