Relative Strength

DEFINITION of 'Relative Strength'

A momentum investing technique that compares the performance of a stock, exchange-traded fund or mutual fund to that of the overall market. Relative strength calculates which investments are the strongest performers, compared to the overall market, and recommends those investments for purchase. Relative strength is a "buy high, sell higher" strategy that assumes a stock whose price has been rising will continue its upward trajectory.

BREAKING DOWN 'Relative Strength'

Relative strength investing has both an entry and exit strategy; investors using this technique aim to sell their holdings as soon as they begin to appear weak. An investing technique in its own right, relative strength can also be applied to more complex strategies such as pairs trading.





There is more than one way to calculate an investment's relative strength. One method is to rank all investments within the same investment universe and purchase the top performers. Another is to take the six-month rate of change in an investment's price and divide it by the six-month rate of change in a relevant index. The investment's rate of change is divided by the benchmark's rate of change to get a relative strength value. If the value is greater than one, the investment is relatively strong; if the value is less than one, the investment is relatively weak.



RELATED TERMS
  1. Indicator

    Indicators are statistics used to measure current conditions ...
  2. Momentum Investing

    An investment strategy that aims to capitalize on the continuance ...
  3. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator ...
  4. True Strength Index - TSI

    A technical momentum indicator that helps traders determine overbought ...
  5. Mechanical Investing

    Buying and selling stocks according to a screen based on predetermined ...
  6. Scale Out

    The process of selling portions of total held shares while the ...
Related Articles
  1. Mutual Funds & ETFs

    FV: First Trust Dorsey Wright Focus 5 ETF

    Take a closer look at the First Trust Dorsey Wright Focus 5 ETF, a unique and innovative fund of funds based on momentum and relative strength.
  2. Mutual Funds & ETFs

    DWAS: PowerShares DWA SmallCap Momentum ETF

    Find out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
  3. Trading Strategies

    Momentum And The Relative Strength Index

    These two indicators can give the trader a better understanding of when to get in and out of an issue.
  4. Forex Education

    Confirm Forex Momentum With Heikin Ashi

    Heikin Ashi smooths trends and makes them easier to identify.
  5. Trading Strategies

    Adaptive Price Zone Technical Indicator Explained

    In a choppy market, following charts can be extremely difficult - the APZ technical indicator may become your best friend.
  6. Active Trading

    An Introduction To The Relative Strength Index

    Learn the difference between relative strength and the relative strength index, a frequently used technical analysis oscillator.
  7. Options & Futures

    Buy High And Sell Low With Relative Strength

    The RS strategy seems counterintuitive, but there is evidence to show that it works.
  8. Active Trading

    Relative Strength Index And Its Failure-Swing Points

    Confirm your buy and sell signals with this oscillator categorized as an overbought/oversold index.
  9. Products and Investments

    There's a Reason They're Called Junk Bonds

    The closing of Third Avenue Managemet's Focused Credit Fund is a warning to investors and advisors. Beware the junk.
  10. Mutual Funds & ETFs

    Top 3 PIMCO Funds for Retirement Diversification in 2016

    Explore analyses of the top three PIMCO funds for 2016 and learn how these funds can be used to create a diversified retirement portfolio.
RELATED FAQS
  1. How can investors in the Internet sector most directly profit from the growth of ...

    Investors in the Internet sector can most directly profit from the growth of e-commerce by investing in the common stock ... Read Full Answer >>
  2. What is relative strength?

    Relative strength is a measure of the price trend of a stock or other financial instrument compared to another stock, instrument ... Read Full Answer >>
  3. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  4. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  5. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
  6. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center