Chapter
Relative Strength Bands
Originally presented in March 2001, this system had an error in the original text
in Active Tradermagazine. Instead of computing the Bollinger bands for the rela-
tive strength line (RSL), as originally stated, the bands should be computed on the
product of all RSV lines (PRSV). The original code did it correctly, but the origi-
nal system logic explained it all wrong.
This system uses a mix of relative strength (not RSI) analysis and Bollinger
bands to identify markets that are about to break out of congestion areas. In this case,
relative strength is calculated by taking the closing price of market No. 1 and divid-
ing it by market No. 2. Doing this for every bar creates an RSL.
Market No. 1 is stronger than market No. 2 when the RSL is above its n-bar
(in this case 21-day) moving average, and vice versa when the RSL is below its
relative moving average (RMA). Calculating the percentage difference between
the RSL and RMA creates the relative strength value (RSV RSL / RMA). The
higher the value above 1.00, the stronger market No. 1 is in comparison to mar-
ket No. 2 and vice versa.
To measure the relative strength among several markets, first divide the price
of market No. 1 by the price of each of the other markets, creating several RSLs.
Then calculate a moving average for each RSL. Then calculate the RSV for each
RSL, as described above. Multiply all the RSVs together to create a product RSV
for each market (PRSV). If the end result is above 1.00, market No. 1 is relative-
ly stronger than the majority of the other markets.
Bollinger bands of each PRSV are used to determine whether a particular
market is stronger relative to a large majority of the other markets. If the PRSV for
a specific market is above its one-standard-deviation (SD) Bollinger band, it is rel-
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