Relative Strength

AAA

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.

INVESTOPEDIA EXPLAINS '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. True Strength Index - TSI

    A technical momentum indicator that helps traders determine overbought ...
  4. Scale Out

    The process of selling portions of total held shares while the ...
  5. Relative Strength Index - RSI

    A technical momentum indicator that compares the magnitude of ...
  6. Mechanical Investing

    Buying and selling stocks according to a screen based on predetermined ...
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 >>
Related Articles
  1. 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.
  2. Forex Education

    Confirm Forex Momentum With Heikin Ashi

    Heikin Ashi smooths trends and makes them easier to identify.
  3. 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.
  4. 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.
  5. Options & Futures

    Buy High And Sell Low With Relative Strength

    The RS strategy seems counterintuitive, but there is evidence to show that it works.
  6. 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.
  7. Trading Strategies

    Know How To Manage Gaps On Your Trading Strategy

    Gaps generate profitable strategies right after they print, as well as during retracements that test those levels, often months or years later.
  8. Professionals

    Are Alternative Mutual Funds, ETFs Right for You?

    Alternative mutual fund and ETFs are gaining popularity but are they a good idea for your regular Joe investor?
  9. Charts & Patterns

    Why These Are 2015's Most-Promising Bank Stocks

    Which bank stocks should offer the best bang for your buck in 2015? Possibly these, so read on.
  10. Chart Advisor

    ChartAdvisor for February 27 2015

    A weekly technical summary of the major U.S. indexes.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center