The Handbook of Technical Analysis + Test Bank_ The Practitioner\'s Comprehensive Guide to Technical Analysis ( PDFDrive )

ChAPter 24 relative Strength Analysis

L e a r n i n g O b j eCt i v eS

After studying this chapter, you should be able to:

■ Understand the significance of relative strength and how it reveals the behavior of one

market against another

■ Describe the difference between underperformance and outperformance

■ Identify and differentiate between the ratio and difference methods of creating relative

strength charts

■ Apply technical studies to relative strength charts effectively

■ Calculate the minimum winning percentage for both linear and non‐linear sizing

r

elative strength charting is an extremely important technical tool for compar-

ing the performance of one market with another. It also helps the practitio-

ner to effectively forecast potential reversals and breakouts based on a change in

percentage performance. In this chapter we will cover the construction and the

application of technical analysis to relative strength charts.

24.1 Measuring Relative Performance

There are numerous ways of studying the relationship between two or more data

series, some of which include:

■ (^) Identifying the degree of correlation over a range of data points between two
data series
■ (^) Identifying the spread or difference of each corresponding data point between
two data series
■ (^) Identifying the ratio of each corresponding data point between two data series
■ (^) Identifying leading and lagging data series