Relative strength

Basis for your most profitable stock market strategies

This is a principle of measuring relative performance between two (or more) symbols within a defined period of time.

You can check this performance for the last year, half year or a shorter time frame.

My charts measure a three-month time frame. Since my trades are swing trades lasting between one day up to four weeks, I check my charts for performance during last two or three weeks of price movement.

Why is this stock market trading tool so important for trading ?

When you find a “strong” stock, you can see stock with money coming into stock shares. The “big boys” are greedy for this stock and so are buying it and pushing the price up. So you can buy it too, and just wait as someone else does the work (pushing the price up). Nice, isn't it? It’s like being on a boat navigating down the river. Remember this stock trading tip:

A stock with relative strength is a good candidate for a long trade.

When you find a good stock, wait for a pullback or breakout trade setup.

So, how you can check if stock is strong or not? I do it by comparing two stock charts.

Here is an example:

• the price of INTC is rising, there’s an uptrend
• the price of MXIM is falling, there’s a downtrend
• INTC acts much better then MXIM
• INTC is stronger stock then MXIM
• INTC is a better candidate for a long trade
• MXIM is a better candidate for a short trade

Do you understand how this comparison was done? If not, please send me your questions .

You can also compare a stock’s relative performance to a sector or industry. Check the stocks above with the chart of the Industry Index (Semiconductors).

If I think about a long trade with some semiconductor stock, then I would prefer INTC to MXIM.

And finally, it’s also good to compare performance between major stock market indexes.

My stock chart analysis tip

Profitable stock market strategies
use relative strength

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