Novice Traders' Notebook  |  JUL 2001

Relative Strength by Martin J. Pring

Relative Strength by Martin J. Pring What to short and what to buy — you should always know the choices the market’s giving you. Relative strength measures the relationship between two securities. By security, I am referring to any freely traded entity, be it a market, stock, currency, commodity, and so forth. Note that relative strength, as used here, has nothing to do with J. Welles Wilder’s relative strength indicator (RSI). RSI is an indicator that measures a security’s price relative to itself over a specific period and is plotted as an oscillator. Relative strength, as discussed here, is comparative relative strength. To find this measurement, the price of one security is divided by another. The result is plotted as a continuous line. There are several ways in which this concept is applied to the marketplace. For example, we can compare one asset to another in order to decide which to buy or to better understand an intermarket relationship. In this case, we might compare bonds to gold to see whether the bond price is in a rising trend relative to gold. If so, this could mean that a deflationary trend is unfolding.

by Martin J. Pring