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What is Relative Strength (RS) and how to identify it (Thread)

 Focusing on stocks exhibiting strong Relative Strength is one of the keys to achieving superior returns. This is one of the core ideas of #CANSLIM

In one sentence showing RS means outperforming other stocks both during market uptrends and downtrends.
In this thread we will cover examples, how to spot it, and how to use it to make sure you are in the top stocks.

If you want to outperform the indexes, logic says you have to be invested in stocks doing the same.
First Some Basic Terminology:

RS Rating: @IBDinvestors Proprietary measure of RS scored 1-99. Stocks with an RS rating of 80 have outperformed 80% of stocks over the past year.

RS Line: The Line plotted by dividing each day’s stock price/ price of the SPX.
The value of the RS line itself does not mean anything, but the trend of this line is very important.

-Note RSI (Relative strength index) is something completely unrelated to the concept of this thread.
RS is the result of supply and demand. Stocks with poor RS are in a distributive phase by major players and institutions. During corrections, such stocks will be sold first instead of accumulated. $IBM is an example of poor RS.

RS rating: 7, decreasing RS line
Strong RS on the other hand is shown by stocks that are under accumulation. Funds are tripping over each other to build positions. This results in the stock price being “supported” even during market turbulence.

NET is an example
RS rating of 98, ⬆️ RS line and # of funds.
So how can you identify Relative strength?

There are many different ways summarized extremely well by @duckman1717 in the document below and I will expand on a couple of these concepts.
First Case Study: $TSLA

Makes a higher Low when the SPX makes a lower one
Stays above 200day SMA while SPX undercuts by 28%

The Leaders often bottom before the indexes

$TSLA increased 800% from this point in 9 months
2nd Case Study: $DOCU

Higher Low again
RS Line hitting new all time highs during correction
Strong bounce once market pressure lifts
Broke out to new all time highs shortly after correction

$DOCU increased 120% in 3 months
3rd Case Study $NIO

Trends above all Key Moving Averages
RS Line in Uptrend
Forms Tight Price areas then breaks out.
Pullbacks are on lower volume than advances

Increased 1000% in 6 months while trending with the 21ema
4th Case Study $FTCH

Breakout on large volume to all time highs
Many up days in a row
Upside reversals near the bottom of price consolidations
Tight price action during correction and right before BO

Increased 100% in 1.5 months from the breakout
5th Case Study: $CRSR

Red to green move on a gap down day
Upside reversal
Prior Uptrend and Volume Contraction within base
These same concepts hold true on shorter timeframes. $TDOC today showed RS for much of the day as it ignored the market intraday pullback for the most part

5 minute chart with SPX comparison
Also take note of #RS changes in character, these can make the start of a strong uptrend/downtrend

For instance:

- Earnings gap ups from Bases on large volume
- Newfound respect for a key moving average

Avoid

- Gap downs on large volume
- Breaking previously respected KMAs
General #RelativeStrength Signs. These are indications that institutions are supporting a stock

- Red to green moves
- Green on Red days
- High DCR +WCR compared to $SPX
- Closing well off lows
- Tight price action compared to $SPX
- RS line ⬆️
- Pullbacks are on low vol
So now how should you use RS?

- Pick stocks with increasing RS Lines + other Signs of RS
- On red days track what is showing RS
- During corrections cut weak stocks first
- During Bear Markets track RS signs- Future Leaders
I hope you found this thread helpful and if so feel free to check out my other ones and retweet:

https://t.co/gCwio1qYWX
https://t.co/4nYwV8Zu2A
https://t.co/ZKQPFIVrWu
https://t.co/INUSXTYoGo

More from Richard Moglen 📽️🦁🚢

Richard Moglen \U0001f4fd\ufe0f\U0001f981\U0001f6a2
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“Sudden rises in price and volume, out of the ordinary relative strength, and movement against the general market trend are all giveaway signals which reveal the presence of a stock about to take off”

Nicolas Darvas
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Richard Moglen \U0001f4fd\ufe0f\U0001f6a2
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As Traders, Technical Analysis allows us to Judge Potential, Identify Accumulation, and Manage Risk.

It allows us to see through the noise and interpret price action.

Here is How To Read a Stock Chart For Beginners (Thread)

Let's start with the basics.

When you first pull up a stock chart you will see Price and Volume plotted versus time.


Each price bar represents one period of whatever timeframe you are on

Some people like candlesticks, I personally think Open/High/Low/Close (OHLC) Bars are more intuitive

For each bar/candle, the four important data points of each period are represented:

High
Low
Open
Close.


For each bar, we want to be able to determine whether buyers or sellers are in control and how much conviction they have.

To do this we use our tools: Price and Volume

Thing about turning a price Bar 90 degrees counter clockwise so the high is now on the left and the low is now on the right.

Then picture a game of tug of war with participants representing buying pressure on the left and selling pressure on the right.
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Richard Moglen \U0001f4fd\ufe0f\U0001f981\U0001f6a2
Richard Moglen 📽️🦁🚢...
@RichardMoglen
What is an Optimal Buy Point? (thread)

Your results as a trader/investor boil down to three statistics

Average Gain - Average % gain on winning Trades
Average Loss -Average % gain on losing Trades
Batting Average - % of trades that are gains

Like in baseball, you can find incredible success in the stock market winning only a handful of times out of ten. In fact a system that is profitable or break even with only a 30-50% BA is more robust and consistent

To establish such as system you need to manage the risk reward relationship (Average gain/Average Loss) so that you can survive winning only 30% of the time.

(I promise this is getting to optimal buy points shortly)

You should shoot for at least a 2:1 gain/loss ratio. 3:1 is even better.

With a 2:1 ratio you can loss 2/3 of the time and break even. With a 3:1 ratio you can lose 75% of the time
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Richard Moglen \U0001f4fd\ufe0f\U0001f6a2
Richard Moglen 📽️🚢...
@RichardMoglen
The Best Resources on @YouTube for Trading 📈📽️

(Thread)

Other than books, video is a fantastic medium for traders to learn about different methodologies & techniques

In this thread I’ll be sharing my favorite resources.

Keep in mind I gravitate towards channels which focus on providing real value over entertainment.

TL We work hard to provide the best growth trading educational videos out there.

Concept videos, interviews, webinars & the archive of the 2021 Trading Conference.

16 Presentations from US Investing Champs & Hedge Fund



Mark has great webinar archives and trade walkthroughs. He also throws in a bunch of drumming and shooting in there.

I highly recommend you watch this webinar he did with @dryan310 multiple

Financial Wisdom

This channel breaks down concepts & summarizes trading books in a whiteboard style which is very entertaining to watch and makes the concepts easy to understand.

Great
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Richard Moglen \U0001f4fd\ufe0f\U0001f981\U0001f6a2
Richard Moglen 📽️🦁🚢...
@RichardMoglen
The Importance of Trading Rules (Quick thread)

Last week I sent out this poll asking if people have a written


Over 60% of people said they did not have one.

It's now one of my main goals to get as many people as possible to commit to writing their own rules which codify their goals and methods.

I strongly believe that writing down your strategy especially if you are a new trader/investor will lead to improved and more consistent performance in the stock market.

Trading the markets is a tough business, money is on the line and emotions can run high.

Preparing ahead of time is essential so that in the moment you are just executing your plan.

This is the best way to stay in the game for the long haul
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More from Traderlion

TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
The best traders take advantage of alternate entries to build positions before a stock becomes obvious to the crowd.

Here are 7 lesser known Chart Patterns that are a MUST in any trader's tool box 🧵👇


#1: Alternate Pivots

Alternate pivots offer earlier entries when compared to regular pivots.

These pivots are important because:

▪️ They offer the same if not better R/R then regular pivots
▪️ Less volatility around these areas
▪️ Allow you to start positions EARLIER


#2: High Volume Close (HVC)

The HVC is created from a big volume gap up.

The close of this day is an important point for institutions to support.

If institutions are in supporting this point, price should be very responsive - making it a great, lower risk entry.


#3: Pivot Retest

The pivot retest setup happens when price retests the prior support/resistance point & then rallies back through.

This can be a powerful setup as it acts as a 'shakeout' and reverses higher with stronger hands holding the name.


#4: In The Wick Setup

We are looking for stocks that open in the wick of the prior session's bar.

The buy trigger is when price moves through the prior day's high.

The stop loss should be the low of the current day.
TRADERLION , TRADING GUIDES
Richard Moglen \U0001f4fd\ufe0f\U0001f981\U0001f6a2
Richard Moglen 📽️🦁🚢...
@RichardMoglen
An Introduction to Price and Volume Action (thread)

An understanding of price and volume action is essential for judging supply and demand characteristics. This allows you to determine whether a stock is under accumulation or distribution and find proper buy and sell points

This thread is not about memorizing candlestick patterns, but instead understanding how supply and demand create patterns over and over again. The Stock Market is an auction, and the large buyers and sellers leave clues for us to find within price and volume.

Let’s start with one price bar. I personally use OHLC charts but feel free to use what makes sense to you, they each present the same information. A single bar can represent a minute, 15 minutes, a day, or a year. The higher the timeframe the more meaningful the price move.


I view each bar as a match of tug of war between the buyers and the sellers. Buying pressure tries to pull the stock price up while selling pressure tries to pull it down. The winner is reflected in the closing range.
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Nick Schmidt \U0001f981
Nick Schmidt 🦁...
@NickSchmidt_
You can spend years looking for the best trading indicator.

Or you can just read this:

I've spent the last 7 years meeting the best traders in the world... and I realized they ALL use the same indicator.

The absolute best trading indicator in the world is your gut.

Like every indicator—before it can give reliable signals—it needs to be studied.

Your intuition only becomes finely tuned after a lot of trials and errors.

Let me explain...

First, we need to understand what intuition is. (that gut feeling)

As traders, intuition is how we make decisions without conscious thought.

Intuition grows (slowly) every time you see the same pattern unfold.

In other words, the more you trade, the more accurate your intuition gets.

Intuition is no different from muscle memory.
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TraderLion
TraderLion
@TraderLion_
Why do we track institutional footprints? 🐘 (Thread)

Large institutions like mutual funds, hedge funds, banks, insurance companies, trusts, etc. amount for over 75% of all volume. These institutions move the market, not you and I.

It makes sense that if these guys are moving the markets, we would ideally want to buy the same stocks they are buying, but before they buy them? Right?

So, let’s get a clear understanding of how and why this is so important and what this might look like behind the scenes.

For starters, let’s discuss what we mean by a large institution. In this case, we are referring to the many funds, pensions, trusts, etc. that are responsible for managing tens, if not hundreds of billions of dollars.

Hence, they easily attract and can afford to retain the planet’s top talent, not to mention, their research budgets are enormous.

They have access to information and resources that the retail crowd simply does not, and if they did, it would likely be extremely unaffordable.
ECONOMY , TRADERLION
TraderLion \U0001f981
TraderLion 🦁
@TraderLion_
8 Chart Patterns by William O'Neil

Let's break them down one by one🧵


Perhaps the most famous basing pattern found in the market is the Cup with Handle pattern.

✅ Chart resembles a cup with a handle
✅ Base length: Minimum 7 weeks
✅ Base depth: 20-30%
✅ Buy point: high of the handle
✅ Handle length: 1 week
✅ Handle depth: no more than 15%


There is also a Cup without Handle pattern.

✅ Chart is just a cup, no handle
✅ Base length: Minimum 7 weeks
✅ Base depth: 20-30%
✅ Buy point: High of left side of cup


The Double Bottom chart pattern is also very common & is one of the most powerful patterns to learn.

✅ Base resembles a "W"
✅ Base length: Min. 7 weeks
✅ Base depth: < 40%
✅ Buy point: middle of "W"
✅ Second low must undercut first low


The Flat Base pattern is another well known structure coined by William O'Neil.

✅ Base resembles a shallow consolidation
✅ Prior uptrend must be greater than 30%
✅ Base length: Minimum of 5 weeks
✅ Base depth: < 15%
✅ Buy point: High of structure
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