Relative Strength
The Relative Strength Index (RSI) should not be confused with Relative Strength.
The Relative Strength Index (RSI) is a technical indicator used in the technical analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. The indicator should not be confused with relative strength.
The Relative Strength is a measure of price trend that indicates how a stock is performing relative to other stocks in its industry. It is calculated dividing the price performance of a stock by the price performance of an appropriate index for the same time period. (Definition by Investopedia)
Stock2own.com automatically selects an appropriate index to compare with from 3 major indexes depends on a stock's country of trade:
Calculation
There are many different methods exist to measure relative strength of a stock. In general it is calculated dividing the price performance of a stock by the price performance of an appropriate index for the same time period.
At stock2own.com we calculate the difference between RSI of a stock and RSI of an appropriate index. In the "Relative Strength" section of the stock chart you may see 3 charts: stock RSI, index RSI and Relative Strength of a stock versus Relative Strength of an index.
How to use it
The level of the RSI is a measure of the stock's recent trading strength. Traditionally, RSI readings greater than the 70 level are considered to be in overbought territory, and RSI readings lower than the 30 level are considered to be in oversold territory. That is why 30 and 70 levels are highlighted on the chart. In between the 30 and 70 level is considered neutral, with the 50 level a sign of no trend.
You can see RSI charts for both - your stock and corresponding index. RSI for a stock gives you an understanding of the stock trend, while RSI for an index shows you current trend for the market as a whole.
The third chart - Relative Strength of a stock versus index - shows how good a stock performs comparing to the market. If this line is around level 50 - stock is doing pretty much the same as the market as a whole. If this line is below 50, than stock is not doing well; if this line is above 50, stock is doing better than a market. Please, keep in mind that even when stock is doing better than market, it's price still may go down. It is just going down slower than for majority of other stocks.
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