Relative Strength
Definition
How a stock performs compared with its index or sector over the same period. A stock with relative strength rises more, or falls less, than the market around it.
Example
“XYZ showed relative strength, making higher lows while the index fell 2%.”
Detailed Explanation
Day traders usually measure relative strength by comparing percent change from the open: if the index is down 1% and a stock is up 2%, the stock is showing relative strength. The clearest sign is a stock that holds higher lows while the index makes lower lows, which suggests buyers are absorbing the selling. Relative weakness is the opposite and is used to find short candidates. Relative strength is a comparison, not an indicator with a formula, and it is different from the Relative Strength Index (RSI), an oscillator that compares a stock only with its own recent price changes. Many traders favor long setups in stocks showing relative strength inside a leading sector.
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