RELATIVE STRENGTH RANK IS NOT RSI, (or Relative Strength Index), where the stock is compared
against itself, other similar industries or sectors or indexes...
This is a measure of price performance of the stock during the previous 12 months
AGAINST THE ENTIRE MARKET IRRESPECTIVE OF EXCHANGE. If we have a stock that has been
ranked as 80 or better, that means that this stock viewed from the perspective of
price outperformed 80% of ALL other common stocks in the entire database during
the last year, (previous 52 weeks).
You can Stock Screen over 10,000 stocks for relative strength at StockTables.com
The Pitbull Investor Stock Trading System utilizes Relative Strength RS Rank as one of the main criteria for a stock buy signal.
This is an extremely powerful stock screen technique whose importance lies in its ability
to, many times, anticipate moves BEFORE they happen.....
As an example, many times a rapidly appreciating stock will continue to improve in
a positive market, but its Relative Strength Rank will begin dropping, which means that there is
a hidden loss of momentum masked by the favorable price increase. In reality the
stock is not keeping up with the rest of the market; not even coasting on the free
ride given by rising indexes like the DOW,S&P or NASDAQ. This occurs many times
just before the stock "rolls over" and begins to head south, so many times
you can exit a position while it is peaking instead of waiting to accept an 8 or
10% loss off of peak price.
Conversely, in a poor declining market, a stock that steadily improves in RS RANK,
even though its price may not be changing can indicate a true underlying strength,
beating all other stocks, and a broad market rally will see these stocks take off
faster and with greater momentum than market laggards.
When you select RS Str Rank from the Criteria menu you can then click on "ALL" which means that you will accept all rankings, or any of the graduated slections below. As an example, clicking on "80+" means that you will only accept screens of stocks which have 80 or greater relative strength. Conversely, if you were to choose "<30" you would be looking for stocks which were performing worse than 70% of the market.
You will find that our Relative Strength Rank does not exactly match those of
financial newspapers, TeleScan©
or Telechart© who also provide their own proprietary rankings. Indeed you will
see vast differences between most of these services because of the way and the frequency
with which they do their updates. Some sources only update once a week, or even once
a month, while others update nightly as we do.
The source that we have used for our Pitbull Investor© Selections for the past
12 years has been a manual screen of the daily financial newspaper. Now we use
Stocktables every day along with the
Stock Market Crash Index
SO HOW DO WE COMPUTE OUR RELATIVE STRENGTH RANKINGS?
TeleScan© and Telechart© all have their own
closely held methods for computation of rankings. We have spent more than a year
and a half developing our own proprietary algorithms which we believe to be superior.
We started with a multi -year study conducted by members of the Toronto Stock Exchange,
(Foerster, Prihar & Schmitz in their article "FPS Quarterly Weightings"),
in developing their own method for computing RS Rank for the TSE. We chose this starting
point because it was a published paper which revealed 4 different methods they were
exploring with over 30 years worth of data.
Based upon that study we continued our own research to more even-handedly evaluate
the dramatic inequities induced in the market by stocks that were less than one year
old or that had had dramatic near term volatility.
The results we believe, speak for themselves, in the form of a truer picture of a
stock's position in the marketplace. Like most others, we give more weight to current
price performance and less weight as we look at data that is aging, but that is where
the similarity stops. As an example, we do not consider a stock that has gone from
$10 to $100 and back to $80 to be the same as a stock that has gone from $10 to $80
and held its position. The stock that has had a 20% recent loss is ranked very low
because of its current performance. In other Ranking systems it would take many weeks
for this effect to come to parity where we can do it in just a day or two showing
market turns much more rapidly before you lose 10 or 20% on your investment.