Registered User
Joined: 12/13/2004
Posts: 4
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There has been much discussion in the Worden Notes of late regarding
Relative Strength Moving Averages (RSMAs) which I use extensively. Yet when
a chart is viewed with Simple Moving Averages (SMAs) and RSMAs, there is
little if any difference between the SMAs and RSMAs. For example, set up 2
tabs:
- One with SMAs (10 and 40 bars)
- The other with RSMAs (using SP-500) with 10 and 40 Averages
Swap between tabs and the visual of the averages hardly changes.
How can this be? It's hard to believe that for virtually every stock, SMAs
are nearly identical (i.e. - nearly 100% correlated to) RSMAs. This would
mean that the relative strength of a given stock over time is virtually the
same as its price movement, and thus that RSMAs (and their crossovers) are
really no different that SMAs and their crossovers.
Would appreciate your analysis.
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Worden Trainer
Joined: 10/1/2004
Posts: 18,819
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You will find that on most stocks many of the times the relative strength line will mimic the price line.
Remember that the RS line measures when a stock is out or underperforming the comparison. I will assume you are using an index as your comparison.
A stock will generally be more volatile than the market... this means when the stock is going up the market is either going down or it is going up faster than the market (both cases it is out performing the market and the RS line is going up). Both price and the RS line are rallying.
This also means when the stock is going down the market is either going up or it is going down faster than the market (both cases it is under performing the market and the RS line is going down). Both price and the RS line are falling.
The RSMA is expecially helpful when the RS line is revealing something significant about price (the RS line is divergent).
Does that make sense?
Plot an RS line with no averages and compare it to prices on several tickers, you will see what I mean. Even better, use the comparison in the RS as a comparison symbol while you compare.
- Craig
Here to Help!
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