Relative Strength
Relative Strength buys the market's leaders: stocks that are outperforming a benchmark index while in an uptrend, and sells them once they stop leading.
Relative Strength buys the market's leaders: stocks that are outperforming a benchmark index while in an uptrend, and sells them once they stop leading. It is a portfolio-management staple - rather than asking "is this stock going up?", it asks "is this stock going up faster than the market?". Only names beating the index (and trending) are held.
How it trades
| Ingredient | Meaning |
|---|---|
| RS(50) | Relative Strength - the stock's 50-bar return divided by the benchmark's 50-bar return. > 1 means it is outperforming the index |
| EMA(50) / EMA(200) | Trend filter - EMA(50) > EMA(200) confirms the stock itself is in an uptrend |
Buy (leading the market in an uptrend):
RS(50) > 1 AND EMA(50) > EMA(200)
Sell (stops leading):
RS(50) < 1
RS(n) is computed as:
RS = (stockClose[now] / stockClose[n bars ago]) / (benchmarkClose[now] / benchmarkClose[n bars ago])
so RS > 1 exactly when the stock's return over the window beat the benchmark's over the same window.
When it works best
A portfolio-management tool for finding and holding market leaders. It works best when there is clear dispersion between winners and losers, so "beats the index" is a meaningful filter. Its defining requirement - and limitation - is that it needs benchmark data: without a representative index series the RS term is null and the strategy never triggers.
Backtest this strategy yourself
Build these rules on the Free plan, adjust them, and see how they would have traded.