What is "Relative Strength" exactly and what's considered a "positive" RS number?
Answers
3086 points
EthanR answered 3 months ago …
Relative Strength is how a stock is trading when measured against other stocks in an index or the same sector. For example, if Home Depot was said to have strong relative strength, it would mean that when compared with other retail stocks, especially ones like Lowes which are similar companies, HD was outperforming the others.
Weak relative strength would mean that a stock is underperforming vs the sector or vs the market in general.
In technical analysis, whenever a stock has an RSI (relative strength index) above 30, that is said to be a positive RSI number. Below 30 is weak, but said to be oversold. Above 70 is considerred overbought, but the stock can stay overbought for awhile. A nice trade is to buy a stock when the RSI has just moved out of oversold territory, and has risen above 30. But avoid stocks where the RSI number has just fallen below 70, as they usually are about to retrace a portion of their recent advance.
107 points
JohnLansing answered 3 months ago …
The Relative Strength Index (RSI) measures a particular financial instrument's (stock, option, etc.) current relative strength compared with its own price history.
The RSI should not be confused with relative strength, which rates a financial instrument in relation to a market such as the S&P index.
The RSI is plotted on a vertical scale numbered from 0 to 100. When the RSI falls below 30, a bullish signal is generated. When the RSI rises above 70, the technical analysis shows a bearish signal.
The formula to calculate the RSI is 100-[100/(1+A)] where A is the average of the "up" closes over the calculation period divided by the average of the "down" closes over the calculation period.
Investors can use different calculation periods, but the most popular is a 14-day period. Again, a financial instrument is considered to be oversold when its RSI falls below 30 and overbought when its RSI rises over 70.
726 points
alanj answered 3 months ago …
The two previous writers have given some excellent answers. Another positive signal to look for for the RSI (if you meant Relative Strength Index and not Relative Strength) is to look to see if the trend is trending up (on the RSI chart). Especially if the RSI was recently at around 30 or less.
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