Relative Strength (RS) - WINNING STRATEGY

Relative Strength (RS) - BE WITH WINNERS

A 5-Min Read that will stay with you and Help you Forever ✌

i) What will be your reaction if your Portfolio is down only 1-2% against a deep red market?

Ans- I'll be Very Stress-free and confident on my stocks going ahead.

ii) "Buy the Dips"- A phrase used everywhere when market sinks, but " What to Buy" is the real question.

Ans- Stocks with High Relative Strength

iii) Is there any method to Filter few stocks out of thousands of stocks listed in market?

Ans- Yes, By the best indicator ever made -> Your EYES 👀

A common answer to all the 3 questions is RS-> A stock which is showing strong relative strength deserves a place in your watchlist and also in your portfolio once it starts moving in your desired direction. These stocks have good buying interest by everyone, may it be institutions or so called "operators".

But how to identify these stocks ?

Some signs are as follows ->

1) Stocks which correct less on the day when broader market is extremely weak -> A very recent example of which is #MCDOWELL aka UNITED SPIRITS

-> NIFTY Tanked 800 points/ 5% On 24th February, 2022. Carnage was seen across the Dalal street with stocks falling 7-15% and hitting new 6-8 Months low. But Then there was this particular stock, correcting only 0.5% with very high volumes. Clear signs of extreme strength shown by the stock. Now see the follow through on the very next day as soon as the market recovers a bit.

-> The Stock Hit a high of 898 from previous close of 844, decent returns in a single day.

Other Example Being #FINEORGANICS

-> On the very same day of deep correction in markets, Fine organics was in a mood which no-one else was. Closed at DAY's HIGH when Nifty 50 Closed at DAY's LOW.

JUST WOW!!!! -> Follow through was amazing and the stock closed almost 9% high at new ATH with amazing volumes.

2) Stocks which have short bases with small corrections and show strong rally thereafter ( Growth Stocks) -> These type stocks rarely correct heavily, rather they enter short term consolidation and breakout with high volumes indicating continuation of bullishness. Always remember Price-Volume Together is KING. Some examples of such stocks from previous leg of run are

#JSWENERGY

-> Breakout - Consolidation - Breakout - Consolidation - Breakout....... And the Love Affair continues.

Also Look at the volumes, justifying and speaking up for the Journey of massive Returns over the period of 2 years.

Now Look at the next example

#PERSISTENT

-> Look at the constant Base formation throughout last two years. Every-time stock goes into mild correction/ Pullback and Breaks-out in very short time interval. Constantly makes new HIGHER HIGH AND HIGHER LOW. Very strong relative strength compared to any Index or other stocks.

Volumes On breakout Confirm that the Trend may continue. Persistent Being Persistent.

One last example -> #GREENPANEL

-> Upmove Followed my weekly tightness everytime, one of the best examples for Growth stocks. The stock broke out of it's ATH and started new journey on upside with excellent volume activity followed by superb quarterly performances.

3) Stocks Which tend NOT to fill Gaps On WEEKLY CHARTS -> Such Stocks make "Runaway Gaps" and tend to rise higher, not coming to fill gaps. Very strong signs that the buyers do not want the stock to go down even to fill the gap. Extreme Strength!!

Some Examples are

#PERSISTENT Again!! ( No doubt the Outperformer stock)

#POLYPLEX

One such stock is #REDINGTON -> Please try to find gap Yourself on weekly chart.

One indicator on Tradingview which may help ->

Relative Strength Line by @iArpanK

The indicator consists of two components- the Relative Strength ( RS ) line & alert labels on new RS highs. Relative strength gives a measure of how the underlying security is performing with respect to a base index or security. For example, how is NSE:DIXON performing w.r.t NSE:NIFTY or how is NASDAQ:AAPL performing w.r.t. the TVC:SPX .

A rising RS line tells us that the underlying entity is outperforming the base entity. Similarly, a declining RS line shows under-performance of the underlying entity. A new high in RS (especially before a new high in price) often gives valuable information about the underlying security's strength w.r.t. the general market, and can tip us off to a possible breakout in the price in near future.

Making RS lists (list of stocks making new high in RS on heavy down days in index) can be very helpful to sort out leaders that are best resisting the decline and are likely to move up aggressively when the market turns favorable.

The concept of RS is extensively used by momentum traders and growth stock traders. When used in conjunction with price & volume action, this can be a very powerful tool in your trading arsenal. You can now easily spot RS trends and new highs visually by simply adding this indicator to your chart!

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