Understanding Relative Price Strength

Charles D. Kirkpatrick II, CMT

What Is Relative Strength?

Relative strength is a method of selecting favorable stocks from within a universe of stocks. It is not the oscillator called “RSI” or “Relative Strength Index,” a common misnomer given to it. It is a selection method, not an indicator. Its underlying assumption is based on the observation that stocks, and other freely traded markets, have a predilection to travel in price trends—upward, downward, or sideways. This predilection is often called momentum, a term borrowed from physics that suggests these trends will continue into the future for an indeterminable period.

The concept of investing or trading with trends is counterintuitive to most investors. ...