Hello Everyone,
Today we are again with a New Topic CRS (Comparative Relative Strength)
So Lets Start
What is Comparative Relative Strength
This chapter will share insights on a valuable lesser-known form of market analysis referred to as comparative relative strength ( CRS ). This is the study of one stock or sector in relation to other sectors or the overall market. This technical study can give a better look at where the money may or may not be flowing. Comparative relative strength is not to be confused with Welles Wilder's relative strength index or Williams Percent “R” indicators. Both of these technical tools are considered oscillators and give an indication if the stock or security is overbought or oversold relative to its past price action over a specific period of time.
WHAT IS IT USED FOR?
In using CRS , we take one market and divide it into another, and the result is a continuous close line graph. Typically, the numerator is the product that we are comparing against the denominator or benchmark. This technique is used to uncover or detect any hidden weakness or strength when analyzing one company against another in the same sector or comparing an individual stock against its related industry sector. We can also use this technique to compare individual stocks or sectors to the benchmark stock index like the Standard & Poor's ( S&P ) 500, the Dow Jones Industrial Average , the Russell 200, the Nasdaq 100, or the Nasdaq Composite . Why do traders use this analysis method? To see where the money is flowing to help confirm a trading bias. To see if a stock or sector is outperforming compared to its benchmark. To see which are the weakest sectors compared to the benchmark. As an early warning signal.
Pair Trading
A pair trade simply consists of buying one company and simultaneously selling short another similar or “like” company with the expected results to see the company one bought outperforming the company that was sold. Keep in mind that the key word here is performance. As you will see, markets can move higher or lower, but one product may not move up or down as far or fast compared to the like market. This is why a spread or relative strength chart may show an increase or decrease in the trend.
Example of Pair Trading :-
We saw a couple of months ago that when Ronaldo moved two Bottles of Coke, The share price of coke started to a downfall in this situation Pepsi will get a much profit than coke so we will select Pepsi to buy
CREATING THE CHARTS
Setting up your charting platform is relatively easy. A basic relative chart is created as a spread chart. Here are a few reasons why you want to look at a comparative difference chart. Comparative analysis or pairs-trading charts are easy to create. Again, we're only looking at the price relationship of one product against another. Logically, since the price is dictated by the laws of supply and demand , you can anticipate that when one market outperforms another, it will do so over a period of time, which lends itself to a trending condition.
As you can see with the Help of the Moving Average and the Breakout of Trend Line in CRS ( Comparative Relative Strength )
This shows with the potential of moving up The dead Company Tata power shows a big bullish than Power grid
Trader's Tip
1. When placing a spread trade, one should remember to enter the size of each side of the trade basis, and the notional value of each side of the spread. Spread trades are not necessarily placed on a “one-to-one” basis, such as selling 100 shares and buying 100 shares. In commodity spreads, for example, one platinum contract is 50 ounces and one gold contract is 100 ounces. Therefore, as a correct spread trade, a ratio of two contracts of platinum versus one contract of gold would be the correct trade per spread order. As for the S&P 500 (ES) versus the Nasdaq 100 (NQ), if the E-mini S&P is valued at 1,340 and the index is priced at $50 times the index, then the notional contract value is $67,000. At the same time, if the E-Mini Nasdaq 100 contract is valued at 2605 and the index is priced at $20 times the index, then the notional contract value is $52,100. Therefore, a correct ratio for a spread trade between the ES and the NQ would be four contracts of the S&P versus five contracts of the Nasdaq
2. Thus, using comparative RS is by definition trading metric. Once again, the question begs: How we can make money using this form of analysis? Spread charts or RS comparisons graphs can give you an idea of the best place to put your money, but perhaps it may help you decide where not to put your money. Using trend-line breaks in the RS charts helps us to uncover what we call divergence between the spread chart and absolute prices. Therefore, make sure you set up your trading platform so that you look at the two different markets that you want to compare against, as well as the spread or the RS chart.
Two definitions of metrics found in Webster's dictionary are
1. The art of metrical composition, which is pertaining to measurement.
2. Combining form means the science of measuring that specified by the initial element.
Automating Signals
Most traders and technicians ask themselves what they can do to improve their indicators so they can respond more quickly to changes in market conditions. The obvious answer is the speed at which the data is received. But for end-of-day analysis, speed is not an issue. With thousands of markets to analyze, it would be nearly impossible to detect signals in all the market combinations, a requirement of using RS analysis. Therefore, it is best to take advantage of computer technology and create an automated scanning feature. How do we create this? By using moving averages on the RS charts themselves. As a rule of thumb, when using moving averages, the shorter the time frame, the more sensitive it is to price changes. I find that using a simple moving average for shorter time periods is effective for using longer time frames. Using a weighted moving average to the nearest close is more effective. For instance, if I'm using a 3- period moving average, I would use a simple moving average . If I'm using 12 or more time periods, I would use a weighted close moving average. In the following examples, I am using a 15-period weighted moving average .
Comparing two significant charts, So that we could find which gives more profit and which gives less
Conclusion
Comparative RS analysis demonstrates the concept of sticking with stocks in the strongest-performing groups—that's not to say that you can't make money in an overall rising stock market, but your best rate of return or performance will be with the stocks that are tied to strong industry groups. It also helps identify the weaker sectors, so you may figure out what to avoid. That way you are not putting good money to use on a less productive market. I don't want to make this out to be the end-all form of analysis. As I will discuss, there is no one single holy grail of market analysis tools or techniques; that's why we look for corroborating analysis, such as trying to fine-tune our indicators and finding the need for using a moving average of the spread or RS line in addition to trend line analysis. The coming chapters will show how we can apply other tools and techniques to help pinpoint our price entries as well as exit strategies.
Hope you all Like it
Bye-Bye for now
Today we are again with a New Topic CRS (Comparative Relative Strength)
So Lets Start
What is Comparative Relative Strength
This chapter will share insights on a valuable lesser-known form of market analysis referred to as comparative relative strength ( CRS ). This is the study of one stock or sector in relation to other sectors or the overall market. This technical study can give a better look at where the money may or may not be flowing. Comparative relative strength is not to be confused with Welles Wilder's relative strength index or Williams Percent “R” indicators. Both of these technical tools are considered oscillators and give an indication if the stock or security is overbought or oversold relative to its past price action over a specific period of time.
WHAT IS IT USED FOR?
In using CRS , we take one market and divide it into another, and the result is a continuous close line graph. Typically, the numerator is the product that we are comparing against the denominator or benchmark. This technique is used to uncover or detect any hidden weakness or strength when analyzing one company against another in the same sector or comparing an individual stock against its related industry sector. We can also use this technique to compare individual stocks or sectors to the benchmark stock index like the Standard & Poor's ( S&P ) 500, the Dow Jones Industrial Average , the Russell 200, the Nasdaq 100, or the Nasdaq Composite . Why do traders use this analysis method? To see where the money is flowing to help confirm a trading bias. To see if a stock or sector is outperforming compared to its benchmark. To see which are the weakest sectors compared to the benchmark. As an early warning signal.
Pair Trading
A pair trade simply consists of buying one company and simultaneously selling short another similar or “like” company with the expected results to see the company one bought outperforming the company that was sold. Keep in mind that the key word here is performance. As you will see, markets can move higher or lower, but one product may not move up or down as far or fast compared to the like market. This is why a spread or relative strength chart may show an increase or decrease in the trend.
Example of Pair Trading :-
We saw a couple of months ago that when Ronaldo moved two Bottles of Coke, The share price of coke started to a downfall in this situation Pepsi will get a much profit than coke so we will select Pepsi to buy
CREATING THE CHARTS
Setting up your charting platform is relatively easy. A basic relative chart is created as a spread chart. Here are a few reasons why you want to look at a comparative difference chart. Comparative analysis or pairs-trading charts are easy to create. Again, we're only looking at the price relationship of one product against another. Logically, since the price is dictated by the laws of supply and demand , you can anticipate that when one market outperforms another, it will do so over a period of time, which lends itself to a trending condition.
As you can see with the Help of the Moving Average and the Breakout of Trend Line in CRS ( Comparative Relative Strength )
This shows with the potential of moving up The dead Company Tata power shows a big bullish than Power grid
Trader's Tip
1. When placing a spread trade, one should remember to enter the size of each side of the trade basis, and the notional value of each side of the spread. Spread trades are not necessarily placed on a “one-to-one” basis, such as selling 100 shares and buying 100 shares. In commodity spreads, for example, one platinum contract is 50 ounces and one gold contract is 100 ounces. Therefore, as a correct spread trade, a ratio of two contracts of platinum versus one contract of gold would be the correct trade per spread order. As for the S&P 500 (ES) versus the Nasdaq 100 (NQ), if the E-mini S&P is valued at 1,340 and the index is priced at $50 times the index, then the notional contract value is $67,000. At the same time, if the E-Mini Nasdaq 100 contract is valued at 2605 and the index is priced at $20 times the index, then the notional contract value is $52,100. Therefore, a correct ratio for a spread trade between the ES and the NQ would be four contracts of the S&P versus five contracts of the Nasdaq
2. Thus, using comparative RS is by definition trading metric. Once again, the question begs: How we can make money using this form of analysis? Spread charts or RS comparisons graphs can give you an idea of the best place to put your money, but perhaps it may help you decide where not to put your money. Using trend-line breaks in the RS charts helps us to uncover what we call divergence between the spread chart and absolute prices. Therefore, make sure you set up your trading platform so that you look at the two different markets that you want to compare against, as well as the spread or the RS chart.
Two definitions of metrics found in Webster's dictionary are
1. The art of metrical composition, which is pertaining to measurement.
2. Combining form means the science of measuring that specified by the initial element.
Automating Signals
Most traders and technicians ask themselves what they can do to improve their indicators so they can respond more quickly to changes in market conditions. The obvious answer is the speed at which the data is received. But for end-of-day analysis, speed is not an issue. With thousands of markets to analyze, it would be nearly impossible to detect signals in all the market combinations, a requirement of using RS analysis. Therefore, it is best to take advantage of computer technology and create an automated scanning feature. How do we create this? By using moving averages on the RS charts themselves. As a rule of thumb, when using moving averages, the shorter the time frame, the more sensitive it is to price changes. I find that using a simple moving average for shorter time periods is effective for using longer time frames. Using a weighted moving average to the nearest close is more effective. For instance, if I'm using a 3- period moving average, I would use a simple moving average . If I'm using 12 or more time periods, I would use a weighted close moving average. In the following examples, I am using a 15-period weighted moving average .
Comparing two significant charts, So that we could find which gives more profit and which gives less
Conclusion
Comparative RS analysis demonstrates the concept of sticking with stocks in the strongest-performing groups—that's not to say that you can't make money in an overall rising stock market, but your best rate of return or performance will be with the stocks that are tied to strong industry groups. It also helps identify the weaker sectors, so you may figure out what to avoid. That way you are not putting good money to use on a less productive market. I don't want to make this out to be the end-all form of analysis. As I will discuss, there is no one single holy grail of market analysis tools or techniques; that's why we look for corroborating analysis, such as trying to fine-tune our indicators and finding the need for using a moving average of the spread or RS line in addition to trend line analysis. The coming chapters will show how we can apply other tools and techniques to help pinpoint our price entries as well as exit strategies.
Hope you all Like it
Bye-Bye for now
