"Relative Strength" in Weinstein's "Secrets for..."

[locKified]

I was wondering how if there was a way to chart this on Yahoo Finance or chart it using another other charting software. From memory, the relative strength definition in his book was price of stock/S&P index of the ASX (in respect to the Aus stock market). I was also wondering if it was under a different name.

Thanks. ^_^

EDIT. Second question is the 30 week MA used in the book weighted or is it the simple MA? (Sorry for noob question)

Thank you once again.

 

[DaveMac]

Hey LocKified,

Go to a Yahoo Basic Chart of the All Ords (or other index). Unde the header it says "Compare AORD vs" - just type in your stock code there and voila! Relative performance vs your index.

http://au.finance.yahoo.com/q/bc?s=^AORD

Alternatively Amibroker also does it, using the overlay called "Relative Performance" on a chart.

Both will give you relative percentage performance against your chosen stock or index.

Hope this helps,

Dave

 

[locKified]

Hey LocKified,

Go to a Yahoo Basic Chart of the All Ords (or other index). Unde the header it says "Compare AORD vs" - just type in your stock code there and voila! Relative performance vs your index.

http://au.finance.yahoo.com/q/bc?s=^AORD

Alternatively Amibroker also does it, using the overlay called "Relative Performance" on a chart.

Both will give you relative percentage performance against your chosen stock or index.

Hope this helps,

Dave

Ahh, thanks. I guess it would had similar effect but is there any way to actually make it be "Price of stock divided by the actual index plotted onto the graph". It seems easier to compare since the book I'm reading does it this way.

 

[DaveMac]

Ah, you got me there.

Good luck on your search!

 

[joea]

Hi.
Relative Strength as defined by Weinstein is a comparison as opposed to a Index.
RSC on some software is to allow you to compare a stock or a number of stocks to a base index. Could be XJO. gold price or a sector index.
You can select what you are comparing to.

You must remember that Mansfield Chats as used by Weinstein may calculate it slightly different, but the principle is similar.

Mansfield Charts use 30 week weighted moving average to allow the recent action to count more than the old input. This makes the MA more sensitive to current activity, but has the drawback it leads to a few more whipsaws.
Finally there are 5 points to consider.
1 The high-low-spike.
2 The volume plot.
3 30 Day weighted average.
4 The long range background.
5 Be aware of the relative strength line direction.
joea

 

[tech/a]

Many many years ago in a different life I did a lot of work on this.

Bottom line is that by the time you can see a stock out performing an index its

Well and truly way past opportunity time.
Remember the stock itself will be pulling up the index and out performance which is visible (Many will out perform by small degrees ---- so which one do you feel lucky with??) will only become apparent when its well into its run.

My findings were that there was no clear advantage.

 

[locKified]

Many many years ago in a different life I did a lot of work on this.

Bottom line is that by the time you can see a stock out performing an index its

Well and truly way past opportunity time.
Remember the stock itself will be pulling up the index and out performance which is visible (Many will out perform by small degrees ---- so which one do you feel lucky with??) will only become apparent when its well into its run.

My findings were that there was no clear advantage.

I've been noticing that but it also seems to be useful in some circumstances. Thank you for the insight. I'll keep that in mind when I'm trying to find good stocks.

Hi.
Relative Strength as defined by Weinstein is a comparison as opposed to a Index.
RSC on some software is to allow you to compare a stock or a number of stocks to a base index. Could be XJO. gold price or a sector index.
You can select what you are comparing to.

You must remember that Mansfield Chats as used by Weinstein may calculate it slightly different, but the principle is similar.

Mansfield Charts use 30 week weighted moving average to allow the recent action to count more than the old input. This makes the MA more sensitive to current activity, but has the drawback it leads to a few more whipsaws.
Finally there are 5 points to consider.
1 The high-low-spike.
2 The volume plot.
3 30 Day weighted average.
4 The long range background.
5 Be aware of the relative strength line direction.
joea

Ah. Would 30 week weighted moving avg would be similar to the Exponential Moving Average by any chance then?

And what are 3 and 4?

Thank you

 

[joea]

And what are 3 and 4?

Thank you

The 5 points were how to read the Mansfield chart.

3 Is what average you use.
4 Is what you need to understand. but ITS A PAGE LONG.
joea

 

[Greenscreen]

An old thread but an important topic to understand in my opinion

Does anybody have any idea why stocks with highest relative strength perform the worst during a bear market? It seems illogical to me.

http://thepatternsite.com/StockRS1.html

 

[DeepState]

Re: "Relative Strength" in Weinstein's "Secrets for..."bhuy

An old thread but an important topic to understand in my opinion

Does anybody have any idea why stocks with highest relative strength perform the worst during a bear market? It seems illogical to me.

http://thepatternsite.com/StockRS1.html

The following is a slide taken from a guy called Narasimhan Jagadeesh who was one of the very first people who published about momentum. His work is taken to be the one which kicked it all off as a money making concept in modern finance. It shows that momentum (ie. high relative strength beats low relative strength) does better in bull markets. In bear markets, it has only been in the GFC period that the strategy has produced meaningful losses.



Why does it happen? There are many pieces, but the overall explanation is that momentum is a massive carry trade where money pours in after prior money in the same direction. Leverage is added, those who have been more successful get given more money or have greater wealth and they buy the same stuff that made them successful as a default. An ongoing bull market implies that upside was under-priced in some way and stuff that has gone up keeps going up as the bullish news is absorbed. There are a range of other reasons related to behavioural elements and agency conflicts. To a degree it is self-enforcing in an underlying economic sense as well. Not least is the tax selling effects which are greatest when there are capital gains to actually realise requiring capital losses to be crystalised to offset them.

All this breaks when the market dives for some reason...as it tends to do more aggressively than it rises. The more aggressive the correction, the bigger the reversal in the strategy outcomes as money is extracted and a range of matters outlined above come unstuck. If it isn't too dislocating, a market correction really just stops the effects causing momentum for a bit, rather than sees them wholly reverse prior trends. This hand-sweep statement needs to be tempered by some measure of how detached prices have become from value at the time prior to a correction as well. The GFC was massively dislocating. Credit was pulled left, right and centre, there were heaps of micro-structure things going on...and the 'great moderation' led to a range of highly correlated strategies being put into place over time that were thought to be less correlated at the time. And on and on. Such dislocation has not occurred elsewhere in the modern era. Hopefully we remain in the modern era...time will tell.

Hope this helps.

 

[tech/a]

There are countless studies which show various advantages or edges in the market.

Where the problem lies
Is Practical application of that edge.

You see when we run tests on a past data set we can ascertain a result---it is quantifiable.

But lets take the "Relative Strength" theory.

We like it and want to apply it.

Remember we are IN IT so don't have the advantage of hind site---what is happening is NOW.

So we look for the strongest sector----

(1) How much stronger does it have to be?
(2) How long does it have to be strongest?
(3)Does it matter that perhaps only one stock in the sector is causing this out performance and everything else is under performing?

Then the strongest stock.
Same three questions.

Plus some more
How do we ascertain bull or bear market
The relative strength out performance begins well before it can be seen by us the trader so at what point are we going to hop on THE OUT PERFORMER.

The results in the studies DON'T TAKE THIS INTO ACCOUNT.

To have similar results you need to be on the out performer BEFORE it out performs.

There is much in quantifiable results
But MUCH MUCH more in actually applying the/a theory and results to our trading methods.

 

[Greenscreen]

Thanks RY and Tech/A

RY so what we are saying is that the more unbanked profits in a stock, the more profits to be banked in a time of correction. Hence the under-performance in a bear market?

Tech/A those points are understood. Scenario: It's 1999. Your scan has revealed 2 identical signals on 2 near identical charts of 2 companies but one being a mining company and one being a tech stock. Which one do you choose and why? To me the application doesn't seem to difficult. We look at the trends and momentum of both sectors and until gains in one sector become less than the other we are better to trade the stock in the outperforming sector.

Perhaps I'm being too simplistic? Perhaps being simplistic is key?

 

[tech/a]

Thanks RY and Tech/A

RY so what we are saying is that the more unbanked profits in a stock, the more profits to be banked in a time of correction. Hence the under-performance in a bear market?

Tech/A those points are understood. Scenario: It's 1999. Your scan has revealed 2 identical signals on 2 near identical charts of 2 companies but one being a mining company and one being a tech stock. Which one do you choose and why? To me the application doesn't seem to difficult. We look at the trends and momentum of both sectors and until gains in one sector become less than the other we are better to trade the stock in the outperforming sector.

Perhaps I'm being too simplistic? Perhaps being simplistic is key?

When you try to apply it in real time you'll understand.
Hind site is easy.

 

[DeepState]

Thanks RY and Tech/A

RY so what we are saying is that the more unbanked profits in a stock, the more profits to be banked in a time of correction. Hence the under-performance in a bear market?

Perhaps I'm being too simplistic? Perhaps being simplistic is key?

That is one possible/probable driver of momentum, but probably not even a major one. I have mentioned others in the previous post. To be sure, we cannot even verify that this specific reason exists because we cannot check holdings to the individual investor level which is what is needed to actually fully ascertain and measure the issue about individual investors extending profits and fresh dollars into a stock as momentum extends. Measures conducted on the basis of market aggregate trading data doesn't show any effect. Hence, if this particular rationale exists, it is not on a basis that can be observed from looking at aggregate trading data.

The influence can be inferred via indirect analysis, so I do think it does exists and there is good reason for it to exist. When you observed what happened to the multi-strat hedge funds in the GFC, you have a lot of supportive case studies right there. There are also ways to observe the behaviour of mutual funds and what they hold as they are more successful or not. This points in the same direction.

Also, there seems to be a preparedness to interchange momentum at the sector level and at the stock level in this exchange. The drivers are not the same and their power is very different (stock level being much stronger). Nothing says you can't use both/either. It might help to know why you have made such a choice and what is probably underlying it.

A great deal of work has been done on momentum and many/all of the questions/caveats posed on this thread have been examined in some way. It is a simple concept and can be very simple to implement. If that is enough for you, then great. When/if you dig into it, perhaps to juice it up more, the drivers turn out to be quite surprising in parts and the better implementation can be revealing. Knowledge of this may assist with making informed decisions in future market environments. Further, momentum returns can obviously be improved by being able to predict the market environment you will be heading into given its performance is clearly dependent on the state of the market. If you can predict market direction and volatility, the world is your oyster. You don't need momentum. The idea behind the strategy is that it is thought to work on average through time. Historical analysis is an effort to systematically refine our understanding of how markets work. It is only part of the process of forming a better understanding but it provides a pretty strong basis from which to base your worldview and refine it. People who are hard core on this stuff do not expect history to repeat. They are also frequently surprised by what transpires. Caveat Emptor.

 

[olambeth]

Hi all,


I'm liking the discussion here on relative strength and hoping for this thread to continue.

I thought it was worth asking anyone here if they've had experience with Relative Rotation Graphs, it seems a TM'ed product by this company:
https://www.relativerotationgraphs.com

They've integrated their product into stockcharts.com marketanalyst and even Bloomberg and Reuters, so it seems to have some weight behind it.

It combines RS with momentum and charts a stock against it's index and places it into 4 quadrants:

Lagging, improving, leading and weakening. Thus giving you a great overview on institutional attraction to the stock and the stages of the stocks relationship to the market.

Multiple stocks can be placed and which give you a great market comparison and even a sector comparison all on one chart.

Has anyone looked into this or had experience trading it?


P.s I'm not advocating this software and I don't work for them.

Oli