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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

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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.

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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

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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.


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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”

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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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A brief introduction to trading/investing for beginners and why you should start right now (Thread)

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Why you should invest (Start now!)
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ETFs+ Mutual Funds
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Types of Investing/Trading

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First, why should you get involved and start ASAP, like tomorrow. The simple answer is compound interest and time.
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Individuals must keep their personality, lifestyle, and risk appetite at the forefront of their minds when building their trading system.

In this thread we will break down the components of a successful trading system for consistent returns in the markets 👇

Components of a Successful Trading System

1. Market
2. Time Frame
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7. Journaling
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Let's discuss the first component, The Market.

The financial markets are divided into the following 👇

1. Equity
2. Bond
3. Futures
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5. Commodity

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Once you know which type of Market you want to trade, you must now choose your Time Frame.

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Combination of all the above

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We all want the market to reward us for our hard work, the effort, and time we put into it.

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A downtrend occurs when stocks/markets trade BELOW a downsloping 21DSMA/50DSMA.

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How to identify the next Market Leaders (Thread)

After a basing/corrective period in the market, new merchandise will start to emerge and show itself as the market is setting up for another uptrend.

Some leaders from the previous run may continue their moves, but often it's the new leaders which will provide the most alpha.

So keep an open mind and search for the stocks that are standing out from the crowd with the strongest combination of superior price + volume action and fundamentals.

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First, market leaders by definition lead the market. They will often be making new price and relative strength highs as the market starts moving up from a potential bottom.

Keep an eye on Relative Strength Lines especially. A Relative Strength New High Before Price is a key Leadership Blueprint. For instance, $TSLA showed this characteristic before advancing 350% in 2020

The RS Line is calculated by the Price of the stock/ SPX
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Weekly charts are a powerful timeframe, and regardless of your style, they can help you gain perspective on a particular setup and identify its potential

Using higher timeframes slows the action down and allows you to calmly analyze price and volume.

This will lead to better decision making.

For investors learning to analyze weekly charts and their trends can only complement your fundamental analysis.

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1⃣ Weekly Charts show the True Trend of a Stock

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⬆️ Trending Up
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