Gauging Strength with the Relative Price Strength Rating

The CAN SLIM investment model stresses strength, not weakness. And there’s no better way to gauge strength than by the Relative Price Strength Rating. This compares a stock’s 12-month performance against those of all other listed issues. The results run from a worst-possible 1 to a best-possible 99. An RS Rating of 75, say, means that particular stock has outperformed 75% of all stocks.

By focusing on stocks with an RS Rating of at least 80, you’re zeroing in on the leaders of the pack. In a bull market, one can get confused by a substandard stock that’s climbing. If a rising tide is lifting all boats, it’s harder to see you’re in the wrong boat. But if your stock’s RS Rating is slipping, it’s a laggard — even if the price is rising. You’d be better off with an RS leader, which would be posting bigger gains.

This entry was posted on Friday, September 7th, 2007 at 7:54 pm and is filed under Business, Wall Street. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.