Relative Strength Comparison (RSC) A Key Success Tool in Trade-Part 3

To create an intelligence that uses RSC, you must first open a table of base indices, such as the S&P / ASX200 for the Australian market or the Straits Times Index for Singapore, which you will use to compare between market sectors. After opening the table, left-click on the price field to highlight the price information. You will know that it is selected when a number of small dark squares appear in the price plan. It is important to note that each time you want to conduct such an exploration, you must first select your index.

Then, open the Explorer dialog box and select ‘new’ and name Explorer ‘MetaStock Guide Sector Analysis’. Then tap ‘Column A’ and enter the following formula:

ROC (MOV ((C / P), 13, S), 1,%)

This formula calculates the percentage change in relative strength over a 13-week period relative to the sector’s base index. It may seem complicated, but first let’s break it down into manageable parts, starting with the brackets inside:

C / P is the relative strength (or RSC component) of the sectors tested against the base security.

The way to calculate is to divide the closing price of the sector by `P`, where` P` is the main indicator that you emphasize before creating this intelligence.

(MOV ((C / P), 13, S) Calculates the moving average of the RSC for 13 weeks.

ROC (MOV ((C / P), 13, S), 1,%) calculates the rate of change of the moving average of the RSC, in other words, the amount that the sector transfers up or down as a percentage.

When looking at MetaStock, remember that you did not enter anything in the filter tab. This is because you only use the filter tag when you want to extract certain securities from your research results. You must leave the filter blank because you want to list all sectors, not just one sector.

You should check the time period before starting this exploration. To do this, click the “Options” button at the bottom of the “Exploration Edition” dialog box, and then select the weekly recorded radio button. Double-click “OK” to return to the “Scout” dialog box.

You are now ready to explore, so click the “Discover” button. The `Select Securities for MetaStock Guide Sector Analysis’ dialog box will appear and you must select the folder containing your market sectors. This folder should be stored with your other market information and is generally a folder from the stock folder. However, this may vary depending on who provides your information.

When market sectors are highlighted, click “OK”. When the exploration is complete, the “Exploration Completed” dialog box will appear. Click the `Reports` button to get a summary of the survey. The results shown in column A will give the rate of change of relative strength

Tip: You can adjust the results in ascending or descending order by clicking on the `Column A` heading.

What do these results mean?

The results of this exploration are quite simple. A value greater than zero indicates that the market sector exceeds the base index. Zero indicates that the market sector is operating relative to the base index, while a negative figure indicates that the market sector is performing less than the base index.

Note that an increasing RSC value only indicates that the market sector exceeds the base Index, which does not necessarily indicate that the sector value has increased. Similarly, if the RSC falls; only the sector performs less than the market index, the market sector does not lose value. For this reason, it is important to open the table of market sectors to analyze trends.

This information alone can complete your current trade. For example, you may decide to trade only securities in the best sector. Or you can go a step further, select the first five sectors, and use MetaStock Guide Sector Analysis again. But this time you can compare individual securities with the relevant sectors.

The difference between doing this exploration and doing the first is that the market index is now transformed into a market sector chart; and the list of sectors will be a list of the securities that make up the best performing sectors.

By following the same steps as before, you can conduct five separate surveys and rank the securities by their respective sectors. The result will determine the securities that perform best in the first five sectors.

The final step in this top-down analysis will be to open all the graphs included in the shortlist. You can further lower this list by canceling securities that are not in high trend or are sold very poorly. In the end, between five and ten securities will remain the cream of the crop. These securities will be the best performers in the best performing sectors.

These securities should now be placed on your watch list. I advise you to compete and buy them. Instead, wait for a suitable trigger to enter. This can be based on candlestick patterns and / or suitable combinations of other bullish indicators.

RSC intelligence is a great way to harness the power within MetaStock. It can be an extremely effective tool for identifying profitable trading opportunities. The disadvantage of this type of intelligence is that it does not have a complete system in itself and needs to be combined with other entry, exit and money management rules. However, you can create a robust trading system that will benefit greatly from the inclusion of sector analysis.

Leave a comment

Your email address will not be published. Required fields are marked *