TickBirdTrader

Relative Price Strength

The strength of a stock relative to the S&P 500 is key part of most traders decision making process. Hence the default reference security is SPY , the most commonly trades S&P 500 ETF .

Most profitable traders buy stocks that are showing persistence intermediate strength verses the S&P as this has been shown to work. Hence the default period is 63 days or 3 months.
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The idea is to buy stocks and sectors that are stronger relative to the market (SPY). Basically taking advantage of the Matthew Effect, i.e. the strong get stronger and the weak get weaker. I find it particularly useful for hunting for stocks with good relative strength during market declines as it indicates that the stock is not being sold. But you have to be careful to make sure that it is not just a low beta stock, such as a utility issue.

The idea is that you need to be buying what the institutions are buying. The best trader I know of for this style of trading is Joe Fahmy (@jfahmy), he is a NY based fund manager who uses the O'Neill method. The idea is that this indicator works similar to MarketSmith's relative strength line. But I much prefer Tradingview because I can write little programs like this and this service is more reasonably priced.

Also you can change the bench mark, to say a sector ETF such XLK when looking a tech stocks, or to a commodity index if you are interested in trading commodity ETFs.
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Thank you very much. I am just wondering how to read the indicator.
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@tlake412, Sorry for the long delay.

Basically show positive momentum over the medium term. Specifically 3 months to 18 months. if you are looking to buy a stock then you would like to know that the stock is stronger than the market, otherwise just buy the market. The moving average is to confirm whether there is persistent relative strength present in the stock relative to the market as a whole. Also if you are interested in 2 stocks then you can then this can be used to determine which is the stronger.
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