Position Position Position C. Rel. Strength - Aussie Stock Forums

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  1. #1

    Default Position Position Position C. Rel. Strength

    What is a stocks Technical position in relation to other stocks?

    How is that technical position changing?
    What are the indications of change?
    Are those indications useful?

    What is the potential of such analysis and it's challenges?

    If position makes up the three Ps
    Relativity makes up the three Rs

    Market, sector, stock.

    A stock relative to its rightful peers?
    A stock relative to itself?

    What is the right scaling... How to allow for different Volatility?

    What is a proper Mkt proxy.. What is the market?
    Such analysis goes back to Wyckoff (part of those responses)
    It is a major component of Wyckoff Methodology..

    These papers are in the same vein ..
    They should I feel should give some food for thought..

    Something for both System and Discretionary traders..

    Com Rel Strength can mean and be used in different ways...

    Anyway here is an interesting starting point...

    Note He is looking for early indications.
    Not yesterdays heroes.

    In order:

    Relative Strength Patterns

    by Isaac Israel

    After having studied many thousands of charts, I believe that the Relative Strength of a sector with respect to various market averages reveals hidden momentum and accumulation/distribution characteristics in the market. These patterns of Relative Strength can predict not only various market events, but even their percentage movements in the future. In particular, this implies that the Black-Sholes formula must be improved to take into account the probable market direction. With this motivation, I am in the process of conducting a detailed study that will demonstrate beyond any doubt that the so-called efficient market hypothesis is wrong, and that prices do have memory.



    by Isaac Israel

    In this chapter, we will mention our initial elementary findings about one of the main assumptions in the Investor’s Business Daily newspaper about Relative Strength: William O’Neil wrote in his books that "Strength leads to more strength." Apparently, this is the reason the Relative Strength ranking of stocks is crucial in the IBD newspaper, because it is believed that those stocks which are consistently outperforming most of the market, are likely to maintain this upward momentum for a reasonably long period of time, and attain much higher values. We can call this assumption, the "Axiom Zero of Relative Strength." If Relative Strength is to be used either for long term or short term investing, then the Axiom Zero must have at least some statistical validity.



    by Isaac Israel

    In this article, I will present a simple algebraic formula that I have derived from the Relative Strength indicator with respect to market averages. Although I have not studied finance (my education was in mathematics and physics), since the big institutions always hire the most brilliant and talented analysts, I would be very surprised if these institutions have not discovered this formula before me, even though I have not seen it mentioned anywhere. For this reason, I do not believe that I am giving away a big secret. But at the same time, probably at least 80 % of the trading in the financial markets is done by institutions, and therefore I believe that it is an injustice not to inform the ordinary citizens about this formula, because the markets are certainly being manipulated.



  2. #2

    Default Re: Position Position Position C. Rel . Strength

    Top down approach.

    Spent a lot of time looking at this approach.
    My findings which Id be interested in your comments Motorway---were.

    By the time a sector was seen as over performing the market and by the time it was apparent that a stock was out performing its index,the major surge that we would have loved to be trading was either over OR predominantly over.

    Any advantage was mute.
    Being able to identify emerging leader was/is more benificial to the trader than identifying those that are now or were previously.
    Institutions ability to do this well before we can puts us in a reactive situation and not a pro active one.

    What have you found?

  3. #3

    Default Re: Position Position Position C. Rel. Strength


    Wyckoff comes from the perspective of anticipation
    (Yes We are still going the same speed .. But the accelerator is NOW pressed to the floor)

    Studies in C.RS agree with your comments when a very lagging approach is used... That is a ranking is given that is "Just History" ..

    Studies that have an anticipatory approach find a different answer..

    Take your experience with VSA....

    You are detecting weakness in the strength of a price move

    Lagging you BUY the breakout or new high and get stopped out..
    Anticipatory you at least look for more confirmation
    You are detecting accumulative or distributive behavior against or with the
    trend ... By analyzing Volume spread relationships..

    OK.. Do the same with C.Rel Strength...

    Wyckoff breaks the action into waves

    So there are two or three measures

    C. RS of reactions Which stocks retreated less on a comparative basis
    (strength in weakness like VSA seeks to do with effort Vs result)

    C.RS of rallies

    C.RS in trading ranges

    Where is strength emerging as waves end?

    Maybe EW analysis could be done on a C.RS chart?

    In any case .. Just like with VSA there can be strength in down bars
    and weakness in up bars

    The same anticipatory approach should be used with C.RS..

    Also consider a stock Vs it's own C.RS chart
    What could strength or weakness mean here?

    Here is some suggestion using the DOW

    So the concept of overbought / oversold as well...

    Using the notion of relative price one can objectively understand whether the DOW is overvalued or undervalued and estimate how close we may be to bursting a bubble or to bottoming out from a major dip.
    The relative price gives a more realistic description of how mkt moves. It may reveal, for example, that a mkts poor performance is not so poor after all, or that a good performance is not that good.

    We can therefore use the relative price as a barometer for detecting exaggerated market moves, be it in the direction of overstating or understating. This is a dynamic detection process, i.e., it can only be done on the move, as things change with time. For example, if the DOW's price increases between two dates more than the DOW's relative price between the same dates, the DOW is overstating the market and we are having a bubble situation. If DOW's price decreases faster than its relative price, we have an under-valued market most likely to be followed by a bull market. Large bubbles can burst with a crash....

    ...a bubble or a dip of the market can be viewed as action or reaction, depending on whether it initiates a deviation from zero, or follows a deviation from zero. The relative-price indicator obviously enhances our ability to predict reactions more than actions.

    Theodore Modis
    "This is a dynamic detection process, i.e., it can only be done on the move, as things change with time." This is your test prove retest..
    make a lot of lagging indicators and You are just out of step..
    C.RS esp....

    Here is something of interest and to the point..

    Indicators, Schmindicators! MTA's Dow Award Winner Says Flows Are What Matter
    by: Kira McCaffrey Brecht

    Top on my list of questions to ask Gary Anderson, this year’s recipient of the Market Technicians Association (MTA) annual Charles H. Dow Award was “What are your favorite methods of technical analysis, and which indicators do you rely on most?” Imagine my surprise to hear Anderson say, “I have given up all indicators. None of them work.”

    Anderson relies on his own methods, which involve studying the spread between laggards and leaders, the direction of relative strength leaders and the direction of relative strength laggards. He has been a principal of Anderson & Loe since 1990, and he publishes a weekly market comment at www.equitypm.com. In November, Anderson was awarded the MTA’s annual award for his paper entitled “The Janus Factor,” which can be found in its entirety on his website.
    Anderson launches his recent award-winning paper with a quote from Victor Niederhoffer’s book, The Education of a Speculator : “In some seasons, trend following is good; in others reversing is good. The problem is how to differentiate the two seasons in advance.”

    Having given up on all traditional technical indicators, he details how he utilizes capital flows to determine what he calls positive and negative feedback loops and how traders alternate between trend following and contrarian types of behavior in a Janus-like fashion. (For readers who aren’t up on their Roman mythology, Janus is not only a major mutual fund company, but also an early Roman god of gates and portals, represented by two opposing faces, suggesting the two sides of a door. Janus symbolizes the two-sided nature of things, Anderson wrote in his paper.)

    “If we know the direction of capital flow, we can benefit from swimming with the current,” Anderson explains.

    Go with the Flow
    The basic premise of Anderson’s paper is that capital tends to flow in one of two directions, depending on the mental or psychological state of the trader. The way a trader directs capital flow depends on the confidence level traders have in that trend. “There are times when traders are quite confident in the trend. If the market is going higher, they tend to defer profits in strong stocks and tend to buy into strength. Capital is raised to purchase stronger stocks by selling weaker stocks,” Anderson contends. In a rising market when traders are buying, it creates a “positive feedback loop” between what the market is doing (in this case, rising) and what traders are doing. “Buying begets buying, begets buying begets buying. All positive feedback loops create accelerating trends,” he adds. It is under these conditions that Anderson believes a trending market develops.

    This situation continues until whatever is fueling the positive feedback loop is gone, in this case when traders run out of capital to buy or run out of stock to sell. Anderson sees this as similar to, “I drop a match on the floor and the carpet starts to burn. The fire creates more fire. Fire begets fire. That process continues until all available fuel is exhausted.”

    In his paper, Anderson writes, “During periods of positive feedback, traders buy into strength and sell into weakness. Whether the overall market is rising or falling, capital flows from weaker to stronger issues. As the process continues, relatively strong stocks become even stronger, and relatively weak stocks become still weaker.”

    Capital Flows Go Both Directions
    This same process can occur in either a bull or a bear market. According to Anderson, there are two positive feedback loops – when traders are confident of a buying trend or confident in a selling trend. “Whether the market is moving higher or lower, if you have a positive feedback loop, capital is moving out of weak stocks into strong stocks, on a relative basis,” he said. In a falling market, traders express their preference for strong stocks. “Traders focus in on stocks that are falling the most and either short them or exit a long position. They sell weak stocks aggressively. Once again, capital moves out of weak stocks into strong stocks, on a relative basis. Strong stocks become an island of defensiveness.”

    While most traders tend to think of U.S. stocks as either in a rising or falling market, Anderson sees stocks as either in a positive or negative feedback mode. The positive feedback loop comprises both bull and bear markets, so, yep, you guessed right – a negative feedback loop means a “non-trending market.” During these times, “price action becomes turbulent,” he explains. “The flow of capital reverses. Traders fade the trend and sell into strength and buy into weakness because they lack confidence.”

    And, as Anderson makes clear in his paper, “Traders alternate between two modes. At times, traders exhibit trend-following behavior. Relatively strong stocks are favored, while laggards are sold or ignored. At other times, the reverse is true. Traders in the aggregate turn contrarian. Profits are taken in stocks that have been strong, and proceeds are redirected into relative-strength laggards.”

    Once a trader has identified that a market is currently in a negative feedback loop, or a trendless environment, Anderson says it’s best to step aside for a while. “Even close risk control will eat you alive. Bull markets are profitable. Bear markets are profitable. But, negative feedback markets will nickel and dime you to death,” he warned.

    Anderson calls the first rally, a “contrarian rally” fueled by negative feedback. After all, how many times during the past several years did traders get burned on corrective bounces in U.S. stocks? “Over the last three years we had several episodes of contrarian buying, which were not followed up by positive feedback at all. They fizzled out because traders couldn’t develop confidence in a rising trend, and the market turned back down, driven by momentum,” .

    The only way to make money in the stock market is to swim with the flow of capital. It then becomes of paramount interest to determine the flow of capital. If a market is rising, capital is flowing in. In a falling market, capital is flowing out. Price is an indicator as to whether capital is flowing in or out of the market,” Anderson says. His paper stresses that “Markets make sense” and that “Price series are not chaotic, but are carried along on currents of underlying capital flow.”

    “Traders are Janus-like. At certain times they are confident in the trend. And, the dynamics of the stock market are completely different from when they lack confidence. Are they confident or not confident? That is the key dynamic in the market. It took me years to figure out it’s not about being smarter than the next guy. You just need to go with the flow,” he concluded.

  4. #4

    Default Re: Position Position Position C. Rel. Strength

    Tremendous work here.
    Ive hard copied so I can read at leisure.I have a mathametician in the Family so I'll have him decipher that which I cant.

    Have you been able to formulate this into a workable application for any software? EXCEL even?

    To be able to identify emerging markets and emerging stocks in those markets would be very handy with determining a future universe.

    Tradeguider has a ranking or identification of strongest and weakest however like all I have seen is lagging---most of the action is over by the time identification can be determined.

  5. #5

    Default Re: Position Position Position C. Rel. Strength

    Metastock has Comparitive Strength.
    Can be used relatively easily,just remember to highlight the base stock/index before loading the stock you wish compare strength with.

    Isaaks work basically discusses Divergence of stock against base index.
    He uses long term R/S comparisons.

    Like all divergence signals many are premature to the completion of the divergence.I also notice that type 2 divergence is also evident but not discussed.

    Practical application I believe to be a longterm alert type signal with confirmation triggered by breakout from BOTH price and RSC---long or short.

    Thanks M/W great paper.

  6. #6

    Default Re: Position Position Position C. Rel. Strength

    Wyckoff made C.Rel. Strength one of The central 5 steps of his 1931 course..

    I find the article suggestive ... It is a tool of importance and several lines of inquiry can be followed..

    Here is some of the 1908 version ,, Note the significant points ..
    Ideas that flowered in His latter work..

    Wyckoff integrated it with the 4 other steps.. Each informing each other..

    Who was it said 90% of all modern TA is Wyckoff

    The Use of Charts as Guides And Indicators

    MANY interesting queries have been received regarding the use of charts. The following is a letter representative of most: “Referring to your chart explained in Volume 1 of the Magazine of Wall Street, I have found it a most valuable aid to detecting accumulation or distribution in market movements. I have been in Wall Street a number of years, and like many others have always shown a sceptical attitude toward charts and other mechanical methods of forecasting trends; but after a thorough trial of the chart on Union Pacific, I find that I could have made a very considerable sum if I had followed the indications shown. You have often stated that the tape tells the story; since this is true, and a chart is but a copy of the tape, with indications of accumulation or distribution, as the case may be, why not follow the chart entirely...

    The ordinary chart which is so widely used, is valuable chiefly as a compact history of a stock's movements. If the stock which is charted were the only one in the market, its gyrations would be less erratic and its chart, therefore, a more reliable indicator of its trend and destination. But we must keep before us the incontrovertible fact that the movements of every stock are to a greater or lesser extent affected by those of every other stock. This in a large measure accounts for the instability of stock movements as recorded in single charts. Then, too one stock may he the lever with which the whole market is being held up, or the club with which the general list is being pounded. A chart of the pivotal stock might give a strong buying indication, whereupon the blind chart devotee would go long to his ultimate regret; for when the concealed distribution was completed his stock would probably break quickly and badly. This shows clearly the advantage of Tape Reading over Charts. The Tape Reader sees everything that goes on; chart player's vision is limited. Both aim to get in right and go with the trend, but the eye that comprehends the market as a whole is the one which can read this trend most accurately.

    Wyckoff took tape reading to charting... Here he is talking very much in the vein of C. Rel strength...

    For when the concealed distribution was completed his stock would probably break quickly and badly..

    An interesting study would be various charts of TLS esp from it's all time high.
    When was sideways or even up still down.. When was accumulation really
    "hidden distribution ".. I say TLS because all the way down there was someone
    telling Me that now was the time to buy...

    This is I think a good start . It is very good work..

    The other paper mentions going with the flows
    We need good context to give contrast
    We need to see things in their "relative position"
    Wyckoff is about going with the flows but always looking for the other side
    the emergent..


  7. #7

    Default Re: Position Position Position C. Rel. Strength

    For some of that context

    Here are the Five Steps of the Wyckoff Method

    Step 1:

    Determine the trend and the position within that trend of the general market.

    Step 2:

    Select those stocks that are in harmony with the market, using the idea of relative strength.

    Step 3:

    Select those stocks that have built a potential for a move in keeping with your goals.

    Step 4:

    Determine each stock’s readiness to move and analyze the vertical and figure charts with the help of the Buying and Selling Tests.

    Step 5:

    Time your commitments with a turn in the general market

    On C. Rel Strength there are a number of papers that produce good results
    Even when it used on it's own in a naive way ..

    So the potential it has when integrated with other methods/tools that give good results , on their own ... Must be at least worth exploring..

    That eye that comprehends the market as a whole..
    Or a stocks position in the mkt as a whole..
    Or even an entire markets position in relation to another..

    The five steps or any analysis can be applied to this relative position
    It has to be dynamic and not just static..


  8. #8

    Default Re: Position Position Position C. Rel. Strength

    Stock Selection:
    A Test of Relative Stock Values Reported over 17 ½

    List 1, which began its weekly live trial in July 1982, gained a total of 5086.6% over the
    17 ½ years versus a 1087.6% gain in the S&P 500 and a 221.9% gain in the Value Line Geometric.
    This gain was 4.37 times the gain in the S&P and 16.11 times the performance of the Value
    Line Geometric.


    Relative Price Strength: Most measures of relative strength weigh a stock’s performance against a market average or index such as the S&P 500. This is wrong.
    The addition of a market average only complicates the results. For example, market averages are capital-weighted; individual stocks are not.
    Furthermore, this kind of measurement makes it difficult to weigh one stock
    against another, difficult to tell when price strength is changing, difficult to determine comparative periods, and is difficult to quantify for model building. The best calculation for a stock’s relative strength is to measure price performance equally against all other stocks over some specific
    time period
    The quote brings up a very important Wyckoff type issue..

    What is the market and what is the best proxy of the mkt for our purposes.

    Wyckoff did not like market weighted indexes either..

    The best calculation for a stock’s relative strength is to measure price performance equally against all other stocks over some specific
    time period.
    This is what I had in mind When I wrote about building a better market clock..

    Last edited by motorway; 27th-March-2007 at 02:15 PM. Reason: better colour selection

  9. #9

    Default Re: Position Position Position C. Rel. Strength

    "The SpyGlass Market Toolbox plug-in for MetaStock® takes the five popular plug-ins we've sold for the past three years, wraps them into one program, adds new features, adds industry folders, adds industry indices, adds broad market calculations, and adds three trading systems. SpyGlass is based almost exclusively on user requests. Features include:


    Anyone had any experience with this metastock plug in ?
    There is some info in the thread on possibilites of this approach..

    The best calculation for a stock’s relative strength is to measure price performance equally against all other stocks over some specific
    time period
    One thing this pluggin does apprear to do..

    We want to detect Accumulation and distribution
    weakness will often be first seen in early strength somewhere else
    absolute strength might follow relative strength

    Wyckoff made such methodologies a large part of His method
    He talked about flow of smarter money.. rotation by evolution and by mutation
    and relative strength or weakness leading absolute strength or weakness


    External Relative Strength Analyzer (ERSA)
    Calculates External Relative Strength, a measure of how a security has performed versus all other securities. This is superior to comparing a security to an index since most indexes are weighted by market cap or price. Also, this is the approach advocated by a leading investment newspaper.

    Allows the user to specify the number of periods in the calculation, and to break the calculation into four pieces and assign different weights for each piece.

    The add-on also comes with explorations to report on the External Relative Strength of all your stocks, to find stocks that have made large jumps (or falls) in relative strength, and to test the performance of each decile of possible values (0-9, 10-19, 20-29, etc) over the past six months.

    See more screen shots, or the help file.

  10. #10

    Default Re: Position Position Position C. Rel. Strength

    Quote Originally Posted by motorway View Post
    Relative Strength Patterns

    by Isaac Israel

    After having studied many thousands of charts, I believe that the Relative Strength of a sector with respect to various market averages reveals hidden momentum and accumulation/distribution characteristics in the market. These patterns of Relative Strength can predict not only various market events, but even their percentage movements in the future.........With this motivation, I am in the process of conducting a detailed study that will demonstrate beyond any doubt that the so-called efficient market hypothesis is wrong, and that prices do have memory.



    You probably need a Gmail account

    But you can read his completed book here --complete text.

    Here are some P&F charts ( tend to use P&F a lot )

    Every chart is a relative chart

    something is charted relative to something else

    eg on a normal bar chart..it is Price relative to tIME .

    Trends are where you find them ( But you need to look in the right places )


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