WY-06-25 / 01
Purpose and Comparison Universe of Relative Strength Analysis
Decisions, Execution & Validation
Lesson / WY-06-25
Relative strength compares the price performance of an instrument and a reference over the same observation window. The benchmark supplies a shared context: one can compare the difference in returns over the same period, two price paths normalized to a common starting point, or the instrument-to-benchmark price ratio defined in 25.4 to observe how far the instrument departs from the movement of its group. These methods measure relative performance but do not automatically remove beta, industry, or other common risk effects; their source still needs to be checked against original prices and risk exposures. Screening for long positions generally seeks instruments that rise more, pull back less, or stop falling earlier; screening for shorts generally seeks instruments that fall more, rebound less, or resume declining earlier. Strong and weak are relational terms. An instrument that is falling may still be relatively strong if it declines less, stops falling earlier, or preserves a key low; an instrument that is rising may still be relatively weak if the benchmark rises faster over the same period.
Course content is for learning and research only. It is not investment advice.
Read the Chapter ↗Timestamps
7 lessons · Chapter contents
01Purpose and Comparison Universe of Relative Strength Analysis↗02Comparing an Instrument with the Overall Market, Industry, or a Suitable Benchmark↗03Relative Performance During Advances and Pullbacks↗04Relative Strength Ratios and Swing Comparisons↗05Relative Strength Analysis Versus the RSI Indicator↗06Joint Screening of Relative Performance, Structural Location, and Potential Risk↗07From Initial Screening to Trade Execution↗Observe the market: start with context and place price within its structure.
Understand structure: compare supply and demand, and let evidence support or revise your hypothesis.
Form a view: define risk limits and know when to reassess.
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Point-and-Figure Charts and Price Target Estimation
The Nine Buying and Selling Tests and Trading Scenarios
