Identify Relative Strength: 5 Simple Screens

Rai
Rai

August 6, 2024

6 min read
667 views

Relative Strength is a measure of how well a stock performs compared to a larger benchmark, usually a market index like the S&P500 or Nasdaq. The purpose of screening for stocks showing Relative Strength, when used with technical analysis, is to identify stocks that are outperforming the broader market.

When trading individual stocks you want to find momentum that leads to outperformance. Leading stocks in every market cycle are part of an overall market theme, but the number one stock in a specific industry can still outperform the second-best in its group.

But how do you find stocks with Relative Strength? Deepvue’s charting and screeners make it simple to find the relative strength of a stock and easily determine which stocks may become the next market leaders.

This blog provides five ways you can screen for stocks exhibiting Relative Strength.

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Relative Strength Line New Highs

The Relative Strength (RS) Line is a visual representation of how an individual stock is performing compared to the overall market.

Relative Strength is a leading indicator that corresponds directly to the price action of a stock. When an individual stock is outperforming the market, the RS Line points upward.

In any market, a rising RS Line indicates strength.

Just like we look for stocks making new highs, watch stocks that have RS LInes making new highs.

relative strength screens
Add This Screener to Your Deepvue Account: Link

Screen for stocks that have RS Lines making new highs in any time frame including 1, 3, 6, 9, or 12 months.

RS Line New High Before Price

Stocks that are breaking out into new highs are often the next leading stocks of the market cycle. The same goes for stocks with RS Lines breaking into new highs.

Depending on market conditions, the strongest stocks have RS Lines breaking out into new highs Before the Price of the stock.

In extremely weak market environments, stocks that are moving sideways will show RS compared to the broader market that is decreasing in price. This will cause the RS Line to trend higher while the price of the stock consolidates sideways.

Be on the lookout for stocks that have RS Lines making New Highs Before Price.

relative strength screens
Add This Screener to Your Deepvue Account: Link

Adjust your timeframe to correspond to current market conditions ranging from 1 to 12 months.

Relative Strength Days

Relative Strength (RS) Days, are days in which a stock is showing relative strength compared to the broader market. Analyze a stock’s daily performance to consider how the price moved in relation to the action of the index.

When screening and monitoring your watchlists, you should always consider how the action of an individual stock is compared to the action of the indices and other stocks.

Stocks that exhibit RS Days over 60% of the time during market corrections are potential leadership stocks you want to focus on when the market turns.

relative strength screens
Add This Screener to Your Deepvue Account: Link

This “OR Group” is part of a Screener Preset that looks for stocks exhibiting RS Days over 60% of the time.

Highest Volume In a Year

Volume confirms price action. Significant price movements, accompanied by an increase in trading volume, indicate the move is supported by many traders, investors, and ideally large institutions.

The Highest Volume Edge works best when a stock breaks out into new highs, gaps up on earnings, or has a positive reaction to breaking news.

Stocks that have the highest volume traded in over a year must be watched for a continuation of the move. Pay special attention to stocks with the highest trading volume ever.

relative strength screens
Add This Screener to Your Deepvue Account: Link

A higher Daily Closing Range (DCR) emphasizes a strong close supporting the strength of the move. Adding Dolar Volume helps focus on larger institutional quality stocks.

Up On Down Days

Relative strength doesn’t need to be complicated – If the stock is performing better than the market, it is exhibiting Relative Strength.

The simplest, and one of the most important, screeners you can utilize is to look for stocks that are up when the market is down.

When the market is experiencing selling pressure, look for stocks that are under accumulation. Add liquidity and general technical constraints in addition to any RS screening criteria to ensure you are focused on the best stocks.

relative strength screens
Add This Screener to Your Deepvue Account: Link

When the current trading session is under distribution, look for stocks that have a high Daily Closing Range (DCR) and are less than 1% down.

Relative Strength Examples

Symbol: NVDA
Company:
Nvidia Corp
Year: 2023

Relative Strength Example

Symbol: ZM
Company:
Zoom Video Communications, Inc
Year: 2020

Relative Strength Example

Symbol: CRWD
Company:
CrowdStrike Holdings, Inc
Year: 2023

Relative Strength Example

Key Takeaways

Relative Strength measures a stock’s performance against a broader market index.

The RS Line is a leading indicator of potential performance and provides a visual representation of a stock’s price action compared to the index. Look for stocks with RS Lines making new highs.

RS Days are any day in which the stock shows Relative Strength compared to the broader market. Focus on stocks with RS Days 60% of your trading timeframe.

Look for confirmation in trading volume. Be on the lookout for stocks with the highest volume in over a year especially when the price is breaking out to new highs.

Relative Strength is simple. Identify stocks that are being accumulated when the market is selling off.

Create multiple screeners and routinely update your watchlist with stocks that display Relative Strength.

Frequently Asked Questions

Relative Strength is a measure of how well a stock performs compared to a benchmark such as a market index like the S&P 500. When a stock outperforms the market, it is exhibiting RS.

There are many ways in which a stock exhibits Relative Strength:

  • Up when the market is down
  • New daily high when the market closes with an inside day
  • High daily closing range when the market closes near lows
  • Stock making new 52-week highs when the market is 10% off highs

The Relative Strength Index (RSI) is a momentum oscillator used to identify a change in trend and speed of price movements. The RSI helps traders identify overbought and oversold conditions.

Relative Strength is a pure measurement of an individual stock compared to the index.

The Relative Strength Rating is a calculation based on a weighted average of a stock’s performance over different time frames relative to the performance of a major market index.

The calculation gives more weight to more recent timeframes than timeframes further back in the past and ranges from 1 to 99 with 99 being the highest and 1 being the lowest possible score.

For example, a stock with a 12-month RS Rating of 95 is outperforming 95% of the database over the past year.

Stocks with the highest RS are performing the best in the current market conditions. Be on the lookout for stocks with RS Lines pointing upward as they progress into new highs.

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