Metastock Part 1: Relative Strength Comparison (RSC)....

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Metastock Part 1: Relative Strength Comparison (RSC) The Key Success Tool In Trading By Stock Market Sectors

Within this report I`ll show you how you can find these
profitable trading opportunities with MetaStock. You`ll
be able to make use of techniques usually only used by
professional traders, such as the Relative Strength
Comparison. The basis of the RSC (Relative Strength
Comparison) is found in sector analysis.

What is Stock Market Sector Analysis?

Stock market sector analysis is a top down stock
selection method. Stock market sectors that are
expected to outperform the rest of the market are
identified, through methods such as the Relative
Strength Comparison, and then stocks from those
sectors are selected. The idea is that stocks selected
from superior stock market sectors will perform in the
same fashion as their sectors. This follows the principle
that money generally flows from under-performing
areas of the market to more profitable areas, a truth that
has be tested by many traders.

`My studies have consistently shown that two equally
bullish charts will perform far differently if one is from a
bullish sector while the other breakout is in a bearish
group. The favourable chart in the bullish group will
often quickly advance 50 to 75 percent while the equally
bullish chart in a bearish group may struggle to a 5 to 10
percent gain.` - Secrets for Profiting in Bull and Bear
Markets, Stan Weinstein, (McGraw-Hill 1992)

How can you use Stock Market Sector Analysis within
MetaStock?

To identify stock market sectors that will outperform the
market; you must first compare the strength of each
sector against a chosen market index such as the
S&P/ASX200 for the Australian market, or the Straits
Times Index for Singapore. Once you`ve done this, you
must rank the stock market sectors, and discover which
ones are performing the strongest. After the strongest
stock market sectors have been identified, you can see
which securities are within the sectors. These individual
securities can also be ranked against their respective
stock market sector, which effectively allows you to
single out the best performing stock market sectors.

The Relative Strength Comparison (RSC) is the best
way to compare the strength of one security against a
market index. The RSC compares a security`s price
change with that of a `base` or benchmark security.

When plotted on a chart, the RSC line can be
interpreted as follows:

- An increasing RSC indicates that the security is
performing better than the base security.
- A RSC that moves sideways indicates that both
securities are performing the same.
- A decreasing RSC indicates that the security is
performing more poorly than the base security.

It is important to note that just because the RSC may be
rising in value, the security isn`t necessarily rising in
value as well. This rise only indicates that the security is
performing better than the base security. For example, a
security may be falling in price, but it may not be falling
as fast as the base security. This would result in a rising
RSC. Conversely, if the RSC is falling the security may
not be reducing in value; instead it may be that it`s price
is increasing at a slower rate than the base security.

In the second and third sections of this article, you will
learn how to use the various features of Metastock to
calculate the RSC, and locate the best stock market
sectors to choose securities from.

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David Jenyns is recognized as the leading expert when it
comes to MetaStock and designing profitable trading systems.

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