Relative Strength Trading

[tatrader]

My hero! I love Antonacci. his book is a must read for anyone

Antonacci uses SPY, ACWI, and the 11 US Sector ETFs to get a return of more than 17% annually.

Now, let's see the chart below:

We can see that the strongest Sector in the chart is XLK, which is in 16th place in the above chart.

In this case, TAN - the Incesco Solar ETF - and SOCL - the Global Social Media ETF - are the most promising ETFs.

I'm using the approach to choose securities taking into account diversification and implementing the strict risk & money management I've described in another reply.

 

[Inquisitor]

I must be missing something here if XLK is the strongest sector can you elaborate as to why?

 

[tatrader]

Good post. This approach involves buying into strength, at new highs if necessary. This can be a seriously rewarding approach but it requires even stricter discipline than more conventional approaches.

One thing I am interested in is where you place your stop-losses. please. Some would say if you're buying using Bollinger Bands then the mid-line of the BB will work. Is this your approach?

Also, I wonder of you have compared using Donchian Channels against BB's? Some say Donchian break-outs are more profitable, fewer false moves.....

I use more than one stop-loss levels. The basic one in Parabolic SAR, but I also use the mid-line of BB. The most important thing is to adjust your exposure to your stop-loss. If, for example, the stop-loss is 2 dollars below price and you've decided that you want to risk, let's say 1000 dollars per trade, then you want to buy 500 shares (1000/2).

 

[tatrader]

I must be missing something here if XLK is the strongest sector can you elaborate as to why?

In the chart above we can see that XLK - the Technology Sector - is the strongest one. The other two Sectors that appear in the chart are XLC - the Communications Sector - and XLY - the Consumers Discretionary Sector right at the end of the chart.

The strongest industry ETFs are the first three ones TAN, PBW, and SOCL that represent Solar Energy, Clean Energy, and Social Media ETFs.

A 'safer' approach would be to limit ourselves to the main Index ETFs like SPY, QQQ, etc. We can then include the 11 US Sector ETFs, XLB, XLC, XLE, XLF, XLH, XLI, XLK, XLP, XLRE, XLU, and XLY.

I expanded the list even further by adding some Industry ETFs and some country ETFs of strong economies.

 

[tatrader]

The strongest stocks in the S&P500

Here we can see that the stocks that are strong long-term and have also positive short-term strength are ALGN and PWR.

Let's look at the charts of these two stocks.

ALGN

PWR

The behavior of PWR in the recent market weakness is much better.

As we can see in the above chart price found support on its 20-day moving average - see the blue circle.

In the lower pane, we can see that the stock's Relative Strength is moving up and above its 20-day moving average - the orange box.

As a trigger for our trade, we want to buy when price moves above the green resistance line at roughly 54.25.

I want to hear your opinion. For me, this approach has worked well till now. It combines strength with basic Technical Analysis.

 

[1nvest]

I want to hear your opinion. For me, this approach has worked well till now. It combines strength with basic Technical Analysis.

For me, you are losing somewhat the momentum effect
Antonacci uses momentum, you are using (in this case) a breakout of resistance as an entry criteria. these are different forms of TA to enter a trade. Not sure if you've done a study (backtested) what you are doing, to one of a pure momentum strategy where you look to enter based on the momentum of the sectors and then rotate

 

[NVP]

surely whats interesting is tracking ST performance where the ST comes BACK into +ve with a decent LT record ?

 

[NVP]

The strongest stocks in the S&P500

View attachment 290304

Here we can see that the stocks that are strong long-term and have also positive short-term strength are ALGN and PWR.

for example the really interesting ones for me are the big LT performers getting slammed ST......

LB
SIG
FDX
NVD

but maybe i still Look at things a different way to most ......(as i have always done on Forex)

N

 

[tatrader]

For me, you are losing somewhat the momentum effect
Antonacci uses momentum, you are using (in this case) a breakout of resistance as an entry criteria. these are different forms of TA to enter a trade. Not sure if you've done a study (backtested) what you are doing, to one of a pure momentum strategy where you look to enter based on the momentum of the sectors and then rotate

I think I should explain my approach in some more detail.

First of all, I use the well-researched finding which postulates that securities which have shown strength in the past will continue being strong in the future. That's why I constructed the graph with the strongest stocks both long-term and short-term.

This chart ranks the stocks in descending order according to their long-term (momentum) strength - the blue bars. The short-term (momentum) strength then helps me decide which of the strong (long-term) stocks show (short-term) strength as well.

My approach then goes a step further. As you can see, both ALGN and PWR are strong in both timeframes (short and long). Instead, however, of investing blindly in these two stocks, some simple TA indicates that PWR has better chances to move up than ALGN.

To sum up, from the stocks that have been strong in the past, I use simple TA as a second filter, to pick up the stocks that look more promising.

I hope I've made my approach quite clear, and I'm looking forward to your comments.

 

[1nvest]

I think I should explain my approach in some more detail.

First of all, I use the well-researched finding which postulates that securities which have shown strength in the past will continue being strong in the future. That's why I constructed the graph with the strongest stocks both long-term and short-term.

This chart ranks the stocks in descending order according to their long-term (momentum) strength - the blue bars. The short-term (momentum) strength then helps me decide which of the strong (long-term) stocks show (short-term) strength as well.

My approach then goes a step further. As you can see, both ALGN and PWR are strong in both timeframes (short and long). Instead, however, of investing blindly in these two stocks, some simple TA indicates that PWR has better chances to move up than ALGN.

To sum up, from the stocks that have been strong in the past, I use simple TA as a second filter, to pick up the stocks that look more promising.

I hope I've made my approach quite clear, and I'm looking forward to your comments.

I get your strategy, its slightly different to what i thought it was going to be thats all.
when we reference Antonacci, we look at a rotational method based on the relative strength, where the relative strength is measured in terms of its momentum. there is a trend aspect, which antonacci again uses a positive momentum calculated over 12 months.
I'm not going to knock your strategy in the slightest, its yours. and its so easy for people to criticise others when they fail to even propose an alternative. I still respect and admire what you're doing.
anyway look, enough with my needless comments. this is your thread, knock it out of the park mate!

 

[tatrader]

November 6th: The strongest US Sector ETFs

This diagram shows the strongest US Sectors, namely XLY, XLB, XLC, XLY, and XLI.

We can focus on these sectors. We either buy the corresponding Sector ETFs or choose stocks from these sectors

 

[tatrader]

November 10th update: The strongest Index ETFs

 

[tatrader]

November 10th update: The strongest stocks in the S&P500

 

[tatrader]

November 10th update: The strongest stocks in the S&P100

 

[tatrader]

November 27th update: The strongest stocks in the S&P100
We calculate the long- and short-term strength using a combination of appropriate momentum readings.

It’s a simple and objective way to choose strong stocks and profit from their strength.

You can use either the long-term or the short-term strength, or a combination of them that suits your strategy and time horizon.