• : November 14, 2021
  • : B. Krishnakumar
 
The RS Factor
 
Did you realise that knowingly or unknowingly, every one of us who take decisions based on the price chart are indulging in relative strength or RS study? The regular chart of any instrument is an RS chart in itself. For example, if you are looking at the chart of say Reliance Industries, you are comparing the price of Reliance in Rupee terms.

After studying the chart, if you decide to buy Reliance, then we essentially decide to swap our cash (rupees) for Reliance shares instead. In essence, we have decided that Reliance shares will outperform the cash that we have. Hope you are getting the drift.

The concept of RS is ingrained in Technical Analysis. If you are someone who is a bit confused about how to use RS effectively, the easy workaround is to consider the RS chart as a traditional chart and approach it in the same way you would approach or study a regular price chart.

You may use divergence, overbought/ oversold concepts, and any other tool, that you are comfortable within regular charts in the RS charts too. So, if you are someone who likes to buy the dips, then you can use the same concept and approach in RS charts too. Give it a shot.

You can also choose to adopt a slightly varied approach for RS and price study. In RS, you may choose to identify breakouts and then buy the outperformers on a price pullback. There are multiple ways to skin the cat.

I personally prefer to use the Turtle Breakout scanner to identify outperformers and underperformers. I prefer to use the same scanner to filter my stocks too. So, I am using the same approach/scanner for RS and stocks.

You may also consider Donchian Channel breakouts to identify outperformers & underperformers.

Think about this and maybe it opens up a new dimension to your thought process about using RS charts.