How to Create Relative Strength Ratio Charts

by | Mar 10, 2016

Want an easy way to compare the relative strength of one ticker symbol against another (eg. a sector against an index, two companies)?
Learn how to create your own custom relative strength ratio charts by watching this four minute video.

How to Create Relative Strength Ratio Charts

by Optuma

Hi everyone. One of the common questions we get is how to create a relative strength ratio chart. Now don’t get confused with the RSI indicator. The relative strength ratio is where you divide one security by another, or an index to get it’s relative strength. If you saw the other video about the custom codes, where we added the ticket symbols together to create the FANG composite. We’re going to to something very similar here, but instead of adding them together, we’re going to divide one by the other.

Once again we’ll click on the data menu button, go to custom codes, and click new. On custom code I want to do the US finance sector relative to the SPX, and I’m going to use the ETF spider, which is XLF relative to SPX. That’s the code, or the ticket symbol I’m going to add to my system, and I’m going to call the name financials relative to SPX. Then in the script window, this is where I type the ticked symbol, so XLF, and I’m going to select it from AMEX. Instead of adding the codes, I’m just going to do divide, and SPX, and select that from world indices. Now when I open that code, that is finance divided by the S and P 500 index to get a relative strength.

Now remember the value isn’t that important. It’s just one divided by the other, but what shows us the relative strength of each code is the shape of the line. Now once that’s been added to our system, we can then use that symbol in a watch list. In this screen here I’ve added the other sectors into a watch list. Some materials, energy, industrial, and so on. Now I can just click in the bottom and add XLFSPX, and there it is there. Financials relative to SPX. If we click on that, then the line chart at the top of the screen will updated accordingly. That’s a weekly chart, so you can see lately the direction of that slope, it’s going down. Likewise if we click on something like utilities, you’ll see the opposite. Relatively utilities have been stronger in the SPX.

Now if you look in the lower half of the screen, you’ll see the same sectors, but represented in a relative rotation graph. This is just another way of looking at relative strength. Whereas the line chart you only get the one sector relative to the index. You can only see one at a time. If you look at the RRG you’ll see all of them together. What we’re looking at, or looking for, is stocks or sectors that are outperforming the benchmarks. What we want to see is heading to the top right leading quadrant.

If you have any other questions about RRG, or are interested in seeing more about them, and learning what they do, then please visit our video page, and there’s more information there as well. Once again, you can drop us a line at Optuma.com, and sign up for the blog where you’ll receive regular updates, and articles, and things that might be of interest to you. Thanks very much.

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