Relative Strength Strategy

Relative Strength is calculated as:

$RS = \frac{Price_{Asset}}{Price_{Benchmark}}$

When the RS line is sloping upward, your asset is outperforming the market. When it is sloping downward, it is underperforming. A professional trader's goal is to allocate capital only to assets where the RS line is in a strong, sustained uptrend.

1. Universe Selection: Screen for assets that have strong fundamental criteria (e.g., earnings growth).
2. The RS Filter: Within that universe, rank assets by their 6-month or 12-month RS score.
3. The Buy Signal: Execute the buy only when the asset makes a technical breakout *while* its RS line is hitting new highs.
4. The Exit: Sell if the RS line breaks its own trendline or if the asset's price falls below its trend-following stop (e.g., 200-day MA).

General momentum can trick you into buying a stock that is simply moving with a rising market. Relative Strength ensures you are buying stocks that are leading the market—often referred to as "the stocks that run the furthest during a bull market and hold up the best during a correction."